Covered Calls

Resources

Getting Started

Daily Newsletter, Sunday, 01/21/2001

HAVING TROUBLE PRINTING?

The Option Investor Newsletter Sunday 01-21-2001
Copyright 2001, All rights reserved. 1 of 5
Redistribution in any form strictly prohibited.
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/012101_1.asp
Entire newsletter best viewed in COURIER 10 font for alignment
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
WE 1-19 WE 1-13 WE 1-5 WE 12-29
DOW 10587.59 + 62.21 10525.38 -136.63 10662.01 -124.84 +151.29
Nasdaq 2770.38 +143.88 2626.50 +218.85 2407.65 - 62.87 - 46.50
S&P-100 705.23 + 17.35 687.88 + 6.17 681.71 - 4.74 + 2.22
S&P-500 1342.55 + 24.00 1318.55 + 20.20 1298.35 - 21.93 + 14.33
W5000 12383.90 +202.60 12181.30 +308.80 11872.50 -294.50 +185.50
RUT 488.09 + 2.34 485.75 + 22.61 463.14 - 20.39 + 20.54
TRAN 2953.29 - 48.69 3001.98 -112.01 3113.99 +167.39 + 96.67
VIX 26.29 - 1.33 27.62 - 4.41 32.03 + 1.80 - 1.29
Put/Call .48 .60 .63 .67
******************************************************************
Nasdaq +1.89, we should be thankful for small favors!
By Jim Brown
It was not much, +1.89, but after opening up +73 points and being
dragged down by a -115 point Dow at its worst levels, we should be
happy with any positive finish. The profit taking came back with
a vengeance on the Nasdaq and declines beat advancers on both major
indexes. We expected it but we did not expect the wholesale shorting
of large blocks by hedge funds at the open. Obviously there were
some large investors who believed in the possible return of the
mid-January dip. The Nasdaq opened at 2841 and promptly dropped
-89 points as the flood of selling overwhelmed the optimistic
buyers. The Dow never recovered but bargain hunting slowly pushed
the Nasdaq back over 2800 but traders clearing the deck before
the weekend knocked -40 points off in the last hour of trading.
Microsoft (Nasdaq:MSFT) gained +5.50 after their upside earnings
guidance on Thursday. This helped offset the -$4 loss by SunMicro.
Nasdaq:SUNW got hit on Friday morning by a number of downgrades
which impacted the stock price substantially. The SUNW COO on CNBC
was amazed by the drop. With growth by SUNW of 44% for this year
he felt that they were apologizing for ONLY +44% growth and said
"if +44% is not good enough, what is?" I agree with him and would
look at any further drop in price as a buying opportunity for
long term investors. With a PE of 44 it may not be the cheapest
stock on the Nasdaq but it looks like a real bargain compared to
BRCD at 370. If you are feeling gutsy the Jan-2003-$50 Leap calls
are only $7.25 today! That gives SUNW two years to make it to
$100, split 2:1 and get back to $100 again. Maybe that is too
optimistic but you get the idea. On Jan-13th 1999, two years ago
SUNW was trading under $11, split adjusted, and it also traded over
$64 in the last six months. SUNW traded over 130 million shares.
Critical Path (Nasdaq:CPTH) was the black sheep Friday. After the
CEO said just last month that earnings were on track they announced
last night a loss of -$.16 instead of a penny earnings as expected.
The stock dropped from a high of almost $26 on Thursday to a low
of $8.56 on Friday. It is not nice to fool investors and if the
CEO owned many shares I am sure he learned a costly lesson. If
researchers find a trail of insider trading in the last month it
could well be a VERY costly lesson.
The DOW got hit before the open with an earnings warning by Home
Depot. Nyse:HD used excuse #47, the slowing economy stupid, for
a drop in earnings for last quarter. They also looked into their
crystal ball and said they don't see any improvement until the
third or fourth quarter going forward. HD lost -$3.25 and closed
near the low of the day. Other major Dow losers included Nyse:WMT
-2.25, Nyse:MMM -2.25, Nyse:KO -1.31, Nyse:AA -1.75.
In the back from the dead category, Nasdaq:YHOO closed Friday up
+40% from last weeks Thursday open of $24.12. Closing Friday at
$33.94 YHOO has gained +$9.28 after warning that advertising revenue
would slow. It is now almost +$4 over its close before the earnings
report that made public what everybody already knew. Nasdaq:CMGI
headed back towards penny stock territory Friday after warning
that they were not going to hit previous financial targets. The
conference call was so negative I am surprised they did not drop
to $2 instead of their $5.69 closing price. They said they had
enough cash to get them to profitability although they did not
know how long that would take. ??? With $1 billion currently
in the bank and an estimated $600-$700 million balance at 2001
year end (their estimate) it would have to be sometime in the
next three years. They are closing units and laying off employees
left and right in order to lessen their dependence on Internet
advertising. The low for the year is $3.63, last week, and the
high for the year $163.
The volume was very heavy for a day that ended very close to
unchanged again. I mentioned this last week that heavy volume
and no movement was a problem. With 2.6 billion shares traded
on the Nasdaq it is obvious that the battle between sellers
and buyers is far from decided. The declines beat advancers
on both the Dow and Nasdaq but the new highs continue to beat
new lows by about 7:1. If I had to pick an indicator to determine
internal market health, new highs and new lows would rank high
on the list. On both exchanges combined there were 345 new highs
and only 48 new lows. The NYSE, even though it was down -90 the
ratio was 119:9 highs to lows. The last time there were more
new lows than highs was back on December 29th! New lows have
been under 100 since January 10th. To put this in perspective
new lows were 1694 and 1522 on Dec-20/21st. This was the bottom
on the Dow of 10300 and 2288 on the Nasdaq. The 48 new lows on
Friday was the lowest number of new lows on one day since October.
The Nasdaq has finally broken above the 50DMA at 2740 and has
now put together two 3-day winning streaks and the first two
week winning streak since August. Can you see I am grasping at
straws here? I am trying to paint as positive a picture as I
can, bear with me! According to analysts there is still a pile
of cash on the sidelines approaching 7% of all available funds.
Many fund managers have been vocal about missing the rally and
as many as 40% are still waiting for that last pull back to buy.
There is that January dip theory again. The excuse was heard
several times that they just wanted to make sure Clinton did
not pull a last minute executive order out of his hat before
passing power to Mr. Bush. Come on guys, you have got to come
up with a better excuse than that! According to John Lloyd,
Merrill Lynch mutual funds analyst, fund managers are sitting
on more than $660 BILLION in cash, the biggest hoard since
the mid 1990's. If they decide to put that to work THE RALLY
WILL HAVE LEGS!
Next week is where the rubber meets the road. Earnings have
been coming in better than expected by the headliners although
First Call says the total of all reported companies is running
about -2% less than expected. That is the equivalent of an A-
in my book! So now investors are going to have to decide if they
want to invest or sit on cash for the next nine months. Because
many investors move to the sidelines in April anyway and sit
out over the summer months, that only leaves three months before
the vacation starts. My guess is they are already in withdrawal
and want to put that cash to work, especially with the Fed rate
cut expected Jan-31st. OOPS! Does anybody else worry about a
Nasdaq rally before the Fed meeting possibly leading to only a
-.25% cut instead of the hoped for -.50% cut? That worry is
making the rounds among the fund managers as well. Still, I
doubt that will cause any of them to withhold purchases next
week should the market give them another chance to buy under
2700.
I went through the after hours trades of a couple dozen stocks
and all but one closed higher in after hours than in regular
trading. That is encouraging for a Friday. The +519 point
Nasdaq gain from the Jan-3rd low of 2251 is holding. Friday
would have been a good day for serious profit taking but even
the massive short selling by hedge funds at the open could not
cause the Nasdaq to sell off. Even the -100 point Dow could
not push the Nasdaq into positive territory at the close.
This does not mean we will not have a dip next week. It just
means that bullish sentiment is very strong and tech buyers
are meeting sellers head on and not flinching. The longer we
hold over 2700 the better chance we have a making a run to
3000. The only major economic report next week is the
Employment Cost Index on Thursday and that is going to be
pivotal in the Fed's decision the following Wednesday. That
makes Monday direction day. If the Nasdaq can hold 2700
then the next leg up should begin. If we break and close
under 2700 then traders will start worrying again. If this
happens keep your eyes on the new highs and new lows. As
long as the ratios stay the same and new lows stay under 100
then it is a buying opportunity. If new lows start to climb
then shift to puts or sit out until the next rebound. Sounds
simple, over 2700, party on. Under 2700 watch the internals
for negative clues and check this column on Monday for
direction.
Let's hope the markets react the next eight years like they
have the last eight. With the inauguration on Saturday the
news has been full of presidential comparisons. When Clinton
took office the Dow was only 3255. That is a 7,334 point gain
in eight years. The Nasdaq was 696 and gained 2,074 points to
Friday's close. Obviously significantly down from the 4,436
gain as of March 10th of this year but still a nice gain. To
put the +2,074 point gain in perspective however, that is only
an average of +259 points per year. Heck, we do 259 points on
almost any good week now. So, yes the gains were great but if
we can get the same percentage growth over the next eight years
the Nasdaq will be well over 11,000. The Dow increased +225%
from 3255 to 10589. The same percentage increase over the next
eight years puts us well over 34,000. Am I starting to sound
like Harry Dent? I am not forecasting it, just extrapolating
numbers. I am sure we would all be really happy to see it come
to pass! Now how much are those DJX leaps again? The DEC-02
140-call (14000) for $4.00 is looking really good if we could
just be sure of the same percentages repeating again!
Trade smart, enter passively, exit aggressively!
Jim Brown
Editor
************************************
Spring Options Workshop and Bootcamp
April 5th-9th, Denver Colorado
************************************
OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
event is structured to fully educate you on advanced option
strategies and will make you a better and more profitable trader.
If you attended the March Denver Expo last year and thought it
was the best function you had ever attended.. You haven't seen
anything yet! Great food, entertainment, education and just
plain fun in sunny Denver. The biggest complaint in March was
the massive weight gain experienced by the attendees from the
gourmet menu. We know how to put on a function. Ask anyone who
came last March!
We guarantee the speaker lineup to be second to none. In the
October seminar not only did we have Jim Brown and over 15 of
the OIN staff but Steve Nison, the father of modern candlestick
charting. Also, Dick Arms, creator of the Arms Index or the Trin
Indicator, Gregory Spear, author of the Spear Report, Stan Kim,
founder of the Snail Trader System and Jim Crimmins, president
of TradersAcounting.com. We promise the lineup this April will
exceed your expectations again!
This is not a beginner seminar but if you feel the need to brush
up on the basic trading strategies then we have an optional boot
camp the day before the four day seminar begins. If you have
traded options before and you are comfortable with the basic
strategies then this seminar will take you to a new trading
level. If you have been trading options for sometime and are
ready to broaden your knowledge and improve your trading results
in all kinds of markets then this is for you. Meet and interact
in a small group setting with the writers you have seen in
OptionInvestor for the last four years.
We are starting the seminar with an optional one day boot camp
which will cover all the basic strategies, calls, puts, leaps,
covered calls, naked puts, spreads, straddles, etc. This will
help investors not familiar with all the basic strategies get
up to speed before the intensive education and the advanced
material in the main seminar. The boot camp will be 8 hrs of
personal instruction by the OIN staff.
The main seminar will begin with a reception, dinner and
entertainment on Thursday night and continue non-stop until
noon on Monday. We mean non-stop. We don't quit until you do
and many optional sessions last until 10:PM or later.
The detailed schedule will be posted in about two weeks. There
will not be individual breakout sessions during the day. Each
topic will be covered in 1-2 hr general sessions taught by one
or more OptionInvestor staff and presented on three giant screens.
In the evening we will offer five of our popular chalk talk
sessions for that personal question and answer interaction.
The list of instructors is led by Jim Brown and will include
many OIN staff with outstanding guest speakers during lunch
and dinner each day. The Spring Denver Expo seminars fill up
fast and seating is limited! SIGN UP NOW or risk missing out
on this opportunity.
Unlike other seminars with only two or three instructors, you
will get in-depth knowledge from many different instructors
who are experts in their field.
The cost for the four-day workshop, April 6th to 9th is only
$2995 (spouse only $1495). This includes breakfast, lunch and
supper each day. All course materials, a CD of all the
presentations and a professional video package of the entire
seminar so you can review the material at home in the comfort
of your living room. There is also a $500 discount if you
have attended a prior OIN seminar.
This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
yet personalized options education like this?
Do not delay as seating is very limited.
We guarantee you will not be disappointed!
You can pay for your education one bad trade at a time or you
can invest less money one time to learn how to do it right.
Click here for more info
https://secure.sungrp.com/workshop/april01/index.asp
If you have not been to one of our Denver Expo seminars before
here are some comments from previous attendees:
The words herein are totally inadequate to express what I am
feeling about you and all the OptionInvestor organization. But
this medium is all I have. Thank you more than these few simple
words can say.
Wow, what a seminar! In my 25 years of investing I have attended
many instructional conferences, but I have never, never experienced
one like your Options Expo. The instructors were absolutely tops.
Subjects, generally were on target. Especially for me, the Skybox,
index funds/options and the early morning strategies and trading
were particularly great. The attention to the many details and
nuances were especially evident, and I guess most of the credit
that area goes to your great support team.
Now, the real challenge is to apply and implement the powerful
knowledge I was exposed to.
Sincerely and warmly,
Kevin Hughes, Denver
************
Jim & Staff,
I am sitting in the hotel room after a great 3 days in your
seminar. I can't tell you how pleased I am and want to thank
each of you for a job well done. Having been responsible for
events like this, albeit on a much smaller scale, I can recognize
all the hard work that went into the seminar. Each member of the
staff is to be congratulated!! The seminar confirmed my belief
that the OIN staff really cares about the success of their
subscribers. Jim, you all should be proud of the work you do to
enrich the lives of so many people. It is one thing to amass a
personal wealth. It is a much higher calling to help others meet
their goals in life. I was very impressed that you were emotional
in your closing remarks. You have so much to be proud of -- helping
people fish all over the world! Thanks again and I look forward
to attending another seminar in the future.
My best reagrds,
Jim Boettcher
Austin, Texas
**************
I must say, that your seminar was outstanding!!! Sign me up for
next year. It is rare that a person of your position would share
so generously your knowledge of his trade. I hope that I will be
able to put into place much of what you taught. Every aspect of
the seminar was first class, from the hotel, to the food, the
instructors and the luncheon speakers. One of the biggest
surprises was your generosity in handing out material, and gifts.
Two weeks ago I attended a competing option seminar in Chicago
and all I got from the was coffee at the morning break, No
handouts, no food and half of the final day was promoting their
web site and additional classes. I must say your seminar far
exceeds what I got from them.
Sincerely yours,
Mike Lillis
***************
Please pass on my thanks to the entire OIN group for a fabulous
EXPO. The seminar far surpassed any expectation that I would have
fathomed, had I attempted to! OIN has the right attitude and the
obvious ability to be a leader and I look forward to many years
of positive experiences with you folks.
Kind regards,
Gwen Richardson
****************
GREAT JOB TO EVERYONE!
I described this event to my friends as a life changing event!
(options aside) ,the quality of people, dedication, sacrifice
of their time (the second 40+ hours a week they don't have to
work but do) they do this because they care, wanting to help
others change their life dramatically (My wife thinks I was
oxygen deprived up there !) I came back a different person for
those who know me that says a lot. Now for the options side
I have to admit there was so much info to absorb, most of it
came to me on the 2000+- mile ride home it all started to fall
into place I feel Very confident (yes Jim this can be bad but
I know this now!) Notice the patience here guys! that's one
change I have a plan to stick to !
THANK YOU !!!
Allan O'Neill
**************
Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!
For more info:
https://secure.sungrp.com/workshop/april01/index.asp
*********************
EARNINGS SCHEDLUE
Jan-22nd to Jan-26th
*********************
The earnings calendar is too large to email.
Please visit the website for the complete list.
http://biz.yahoo.com/research/earncal/today.html
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?
Learn how to invest in the OEX, QQQ, and SPX. Get intraday
market updates, plays, education and daily commentaries by
those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1412
************************************************************
**************
EDITOR'S PLAYS
**************
Did you make any expiration week money?
The ASYT example from last Sunday's commentary, the Jan-17.50
call at $.63, traded as high as $1.44 but it was far from the
biggest winner. The SYMC-$40 at $3.75 went to $6, the MU-$40
at $2.75 went to $7.50, the PRIA-$25 at $1.63 went to $6.50,
the TSM-$22.50 at $.81 went to $5.88. Some also went down but
that is a risk with any investment. As traders we need to be
as quick to get out of a trade as we are to enter it.
I bought some January options on Thursday afternoon at the
close on BRCM, BRCD and unfortunately SUNW. The BRCM $130
calls I paid an average of $1.88 and sold them on the opening
spike for $5.25. Made my day! The BRCD $105 calls I paid $.75
and sold on the spike for $1.25. Not bad but the shorts were
pushing the stock down so fast the premiums never had a chance
to inflate. The loser was SUNW of course. I paid $1 for them
hoping SUNW would get the same spike MSFT and others had been
given for decent earnings news. Not so with SUNW. 44% growth
hit their earnings and no material warning but down -$3.50
at the open on several downgrades. The option opened at $.12
but the only trades after the open were 1/16th. Out of 49,759
open contracts only 1061 were closed on Friday. A lot of
unhappy campers on that strike.
I think we get too caught up in the trading syndrome and don't
spend enough time in the investing mind set. To this end I
am going to offer some longer term possibilities today. Before
you click away to another article, hear me out.
Would you consider writing a covered call for a 41% return over
the next four weeks. It is possible. One of our call plays this
week is CIEN at $105. The Feb-$120 call is $7.00. If you bought
the stock on margin ($52.50) and wrote the call at $7, your
return would be 41% if called and I think without a major
direction change in the market CIEN at $120 is almost a sure
thing. The return is calculated like this. $7 premium + stock
appreciation from $105 to $120 ($7 + $15 = $22 divided by the
margin requirement of $52.50 = 41.9%. If you were lucky enough
to have CIEN stop dead at $119 before expiration then you could
write a higher strike next month and raise the return even
farther. The worst case of course is a drop in the CIEN stock
price. If you set a stop loss at $98.50 (not a round number and
under $100) you could still exit the play safely.
If that concept appeals to you then you should definitely
reconsider this idea. For less money and exactly the same risk
you could write a Feb-$120 naked put on CIEN for $21.38. You
do not need to own the stock and the margin is only 25% not
50% as in covered calls. The return, if CIEN closes over $120
at expiration is 81%. ($21.38 divided by the margin of $26.25)
The key point here is you have exactly the same risk. The risk
of the stock dropping. You would set your stop loss at $98.50
just like the covered call but it would cost you slightly more
to close the position since the put would increase in value
between $105 and $98.50. Another alternative would be to ride
it out and risk being put the stock at the end of February. If
put your cost would be $98.63, $120 - $21.38 premium received.
Will CIEN be below $98 by the end of February? That is the risk
you take but it is the same risk as a covered call for twice
the return. If it does close under $98 and you are put the
stock then write a covered call for March as in the previous
example.
Do I still have your attention? Maybe you can't write options
but still like the concept of longer term trades with minimum
risk. Using the same CIEN example you can buy the Feb-$100
put for $10.25 and sell the Feb-$120 put for $21.38. You have
a net credit in your account of $11.13. The margin is the
difference between the strikes ($120-$100 = $20 minus the
net premium received of $11.13). In this example the margin
would be $20 - $11.13 or $8.87 per share. That is also the
maximum amount you can lose even if the stock went to zero.
You are risking $8.87 to make $11.13. This equates to a 125%
return if CIEN closes above $120 on expiration Friday. You
can also put a stop loss on the short option to prevent the
maximum loss. If the stock continued on down your long put
would increase in value and could also end up profitable.
Of course I would probably play this a little more aggressive.
Say the $90 put at $6.63 instead of the $100 put. The margin
increases to $18.87 but the profit also increases to $14.75
as a result of the reduced premium on the lower strike. The
percentage of the return is reduced to 78% but the return is
larger at $14.75. The risk is also larger but you can control
it with a stop loss on the short side. With the stock at $105
I would set the stop to close the short side based on the
stock price at $98.50. (odd number under $100) The short put
will cost you more to buy back but the long put will also be
worth more. Not as much increase as the higher short put but
still some increase to offset the loss.
Then of course you could simply buy calls on CIEN. The Feb-$120
call at $7.75 would escalate to $13.75 if CIEN hit $120 within
the next two weeks. The metrics are very simple. Risk is $7.75,
margin is $7.75 (cash), return is $7.75 divided by $13.75 or
56%. The number one thing going for the long call scenario is
the unlimited upside potential. If CIEN hits $150 you have a
home run not possible in the other plays. The call would be
worth more than $45. This is the pot of gold that keeps option
players in the game. Guess right and score big. Risk + reward
at its greatest potential. Returns are greater because the
possibility of winning is less than with a hedged strategy.
I have shown you several ways to profit from a bullish move
in one stock. I am sure most of our readers will lock onto
the straight call scenario and ignore the rest. This is
unfortunate. The covered call/naked put/spread section of the
newsletter by far produces the most consistent profits every
month and has, even in the bear market, for the last three
years. How well have your straight call strategies done over
the last three years? The cc/np/s section typically only has
1 or 2 losers per month for a 90+% win ratio. Would you make
more money if you lost less?
Good Luck
Jim Brown
***********************ADVERTISEMENT************************
Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR
http://www.sungrp.com/tracking.asp?campaignid=1424
************************************************************
****************
MARKET SENTIMENT
****************
Is This Rally For Real?
By Austin Passamonte
We think so, but each time we start getting bullish an uneasy
feeling begins to overcome. Just like beef cows gently herded off
the open range and into pastures filled with grain, we revel in
our immediate good fortune. If that's what it really is.
On the surface market bulls are looking good. Most of the major
indexes are breaking out above long-term key resistance and seem
ready to run. The SOX is up substantially over the past few
sessions and leads the NDX, which always leads the COMPX.
Over at the Big Board things aren't yet so rosy. IBM (NYSE:IBM)
soared along with Microsoft (Nasdaq:MSFT), Yahoo (Nasdaq:YHOO)
and a host of other tech leaders, although Sun Micro (Nasdaq:
SUNW) couldn't drum up its cover charge to the party. Offsetting
NYSE techs were old economy cyclicals and recent stalwarts like
Home Depot (NYSE:HD) getting nailed for missing & 'fessing up.
"Who cares" say raging tech bulls when it comes to any symbols
shy of four digits that exist in the marketplace. As we've
learned many times in the past, bifurcated markets are not
conducive to sustained rallies. When one major index is up at the
expense of another, that is merely the same money sloshing around
in different sectors.
We consider the following levels key pivot points:
QQQ: 66.50
NDX: 2650.00
CMP: 2800.00
SOX 710.00
BTK: 555.00
OEX 708.00
SPX 1351.00
DJX 10,775
These are comprised of long-term descending trend lines, moving
averages, Fibanocci numbers and horizontal support/resistance
alone or in various combination. We are bullish on closes above
and bearish with closes below and most are trading right at the
mark heading into next week.
If we are to rally and hold high ground, sector rotation won't
cut it. All that historically high record cash on the sidelines
must go to work. Money flow used to forecast immediate market
movement but it has failed to do so for many, many months now.
Speaking of many months, the latest COT report shows S&P 500
traders remain diametrically entrenched for the longest stretch
anyone has ever seen. Again, this used to forecast an almost
immediate reaction but hasn't done so yet. In addition, DJIA
futures traders made a sudden move whereby commercials have gone
very net-short with small specs flipping to heavy net-long. Where
we see near-term technical strength in the Dow, pros in the pits
feel otherwise.
Each of these fundamental studies tells us fear remains in the
marketplace. Money is trapped on the sidelines out of fear. The
biggest traders at the CME are holding fast to huge net-shorts
out of fear. Everyone is scared... is it justified?
Market Sentiment merely measures the market. We can see where
significant danger remains in front of us. Economic challenges
exist that even the most aggressive interest-rate cuts won't
instantly cure. The ultimate multi-year bottom may likely rest
behind us but that's not how many of the largest market insiders
are playing it.
It's our opinion that the markets should rally strong this week
into the FOMC meeting and widely anticipated Fed policy
announcement early next week. Where we go beyond that and post-
earnings season remains to be seen, but one week at a time is
enough challenge these days!
*****
VIX
Friday 01/19 close; 26.29
30-yr Bonds
Friday 01/19 close; 5.52%
Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.
Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.
Saturday
(01/20/2001)
(Open Interest) Calls Puts Ratio
S&P 100 Index (OEX)
Resistance:
745 - 730 2,596 618 4.20
725 - 710 4,472 940 4.76
OEX close: 705.23
Support:
700 - 685 5,407 3,279 .61
680 - 665 1,732 2,863 1.65
Maximum calls: 700/3,011
Maximum puts : 680/2,317
Moving Averages
10 DMA 689
20 DMA 687
50 DMA 704
200 DMA 761
===
NASDAQ 100 Index (NDX/QQQ)
Resistance:
76 - 74 6,624 2,733 2.42
73 - 71 15,103 957 15.78
70 - 68 43,450 2,727 15.93
QQQ(NDX)close: 66.31
Support:
65 - 63 28,166 8,946 .32
62 - 60 27,380 19,694 .72
59 - 57 11,884 11,377 .96
Maximum calls: 70/37,119
Maximum puts : 60/10,644
Moving Averages
10 DMA 61
20 DMA 60
50 DMA 65
200 DMA 84
===
S&P 500 (SPX)
Resistance:
1400 13,509 1,179 11.46
1375 10,042 5,805 1.73
1350 10,766 9,624 1.12
SPX close: 1342.54
Support:
1325 11,147 8,593 .77
1300 1,552 14,878 9.59
1275 412 8,552 20.75
Maximum calls: 1425/18,263
Maximum puts : 1300/14,878
Moving Averages
10 DMA 1320
20 DMA 1315
50 DMA 1339
200 DMA 1421
*****
CBOT Commitment Of Traders Report: Friday 01/19
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.
Small specs are the general trading public with commercials
being financial institutions. Commercials are historically
on the correct side of future trend changes while small
specs are not.
Extreme divergence between each signals a possible market
turn in favor of the commercial trader’s direction.
Small Specs Commercials
DJIA futures (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +1909 -108 -8322 -5438
Total Open
interest % (+20.07%) (-1.37%) (-34.26%) (-21.58%)
net-long net-short net-short net-short
NASDAQ 100 (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +1131 +1861 -4045 -3982
Total Open
Interest % (+6.51%) (+11.29%) (-6.39%) (-7.13%)
net-long net-long net-short net-short
S&P 500 (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +69254 +59586 -89836 -86815
Total Open
Interest % (+37.35%) (+37.29%) (-11.84%) (-11.19%)
net-long net-long net-short net-short
What COT Data Tells Us
----------------------
Indices: The disparity between the Commercials and Small Specs
has increased on the DJIA with Commercials showing a significant
increase in their net-short positions and the Small-Specs moving
net-long.
Interest Rates: Commercials are moderately short T-Bond and
T-Note futures. (mildly Bearish)
Currencies: Commercials continue to build heavily short Euro
futures while small specs build net long. Small specs are betting
on interest rate reduction while commercials remain skeptical.
(Bearish)
Energies: Commercials are net-long crude & oil products at one
year extremes. These producers are hedgers and almost always take
the opposite side of expected market action to lock-in production
prices. They expect lower prices from here (Bearish)
Metals: Commercials are moving to net-long in Gold, Silver and
Copper from short positions. This has happened quickly and they
expect higher precious metals soon.(Bullish)
COT/CRB: This commodity index measures the entire spectrum of
commodities in overall bullish or bearish outlook. It is now at
a one-year high for commercial bullishness, meaning the outlook
for commodities is long-term positive while equities as a mirror
are considered long-term negative.
Data compiled as of Tuesday 01/16 by the CFTC.
**************
MARKET POSTURE
**************
Please visit this link for Market Posture:
http://www.OptionInvestor.com/marketposture/012101_1.asp
************************Advertisement*************************
Get 10 FREE Issues of Investor's Business Daily. No obligation.
Nothing to cancel.
http://www.sungrp.com/tracking.asp?campaignid=1398
**************************************************************
***************
ASK THE ANALYST
***************
Pulling Up The Sox
By Eric Utley
The semiconductor sector (SOX.X) is up roughly 25% in 2001.
Meanwhile, the Nasdaq Composite (COMPX) has gained about 12%.
Not too bad for three weeks of work!
As many of our readers know, I was cautious on the tech sector
after the Fed first lowered rates on January 3rd. And since that
time, I've been flat wrong about tech. But stick with me - I'll
have plenty of money making ideas for our readers.
Last week I urged our readers to monitor the Nasdaq Composite as
it approached the 2700 resistance level. Sure enough, bolstered
by bullish earnings reports and forecasts, the Nazz broke above
2700 en route to clearing its 50-dma last Thursday. That move
was significant since the COMPX hasn't traded above its 50-dma
since last September. And, in my opinion, the COMPX's ability
to clear 2700 last week had everything to do with the strength
in the semi sector as measured by the Philadelphia Semiconductor
Index (SOX.X). Not by coincidence, the SOX hurdled its key
resistance level at 700 last Thursday.
As many of our requests this weekend are chip related, I thought
it would be pertinent to mention a few levels to monitor in
the SOX next week. If the chips do pullback to support levels,
watch for buyers to step in as the SOX revisits 700. Pullbacks
to strong support levels should provide traders with potentially
high reward/low risk operations. If the SOX continues
climbing, watch for a breakout above 750, which if happens,
should carry the COMPX above its next major resistance level
at 2800. In the case of the latter, new positions in the
strongest of chip stocks can be pursued aggressively.
Before we get to the charts, I thought I'd tackle another
reader question that may be beneficial to others.
Which book(s) would you recommend for me to read to learn about
options? - Thank you, Roger
Roger, I have read dozens upon dozens of books about options
and options trading. And of the many books I have read, there's
only one that I would recommend and that's Sheldon Natenberg's
Option Volatility & Pricing. Of all the options books,
Natenberg's is the most comprehensive and insightful. You can
follow the link below to the OptionInvestor bookstore, scroll
down towards the bottom of the page and find the book I
recommend. From there, you can go to Amazon.com's Web site
and read the reviews of the book. Here's the link:
http://216.7.165.9/bookstore/index.asp
I have a complete library of trading and investing books and
would be happy to share opinions with our readers if they are
interested. Let me know via the e-mail link just below.
Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.
----------------------------
Elantec Semiconductor - ELNT
AMCC, ELNT, NTAP, CIEN - Anonymous
Shares of Elantec Semi (NASDAQ:ELNT) represent an interesting
study for several reasons. The stock has clearly traced a
V-bottom over the last four weeks, which is visible on the
chart below. These type of bottoms are VERY difficult to
pick because of their velocity and also because of the
emotion that is involved. But, the V-bottom does reveal that
the market was wrong about shares of Elantec last winter,
when participants drove the stock as low as $20. Nearly 200%
from its low around $20 in mid-December, shares of Elantec are
now telling a different story than the market had discounted
just four short weeks ago.
And that different story was clearly evident in the firm's
earnings report last week. The high performance analog chip
maker reported earnings that beat street estimates by two
pennies. More importantly, though, Elantec executives
guided analysts to expect greater growth in the second half
of this year. And that's the kind of news the tech sector
needs to really get a rally started. Judging by Elantec's
earnings report, it's safe to say the firm has been relatively
immune to the slowdown in the broader chip sector. As such,
I would speculate that shares of Elantec would lead a rally
once the chip and tech businesses REALLY pick up steam. If
the company's products remain in high demand even in bad
times, I would assume that demand would accelerate in good
times.
Now that the stock has advanced nearly 200% from its near-term
lows - in the space of four weeks, no less - it's hard to pick
a high reward/low risk entry point. I would expect some
consolidation in the coming weeks, but I could be wrong - I've
been wrong before as many of our readers know.
There aren't a lot of shorts in Elantec, according to the most
recent data I could find. As such, I wouldn't expect any
short covering to continue to drive the stock higher. Instead,
I would expect new long accumulation to carry the stock higher.
And the way to watch for accumulation is to monitor volume as
the stock advances. If trading activity remains robust as
shares of Elantec advance it's safe to assume new longs are
accumulating and willing to defend their positions during any
pullbacks. And while we're on pullbacks, when the stock does
finally decide to consolidate look for support at either its
ascending trend line or between the $45 and $50 levels, which
appear to be of some significance judging by historical
trading activity. On the other hand, if shares of Elantec
continue climbing, pay close attention of the $63 level,
which currently marks the site of the 200-dma. If the stock
breaks right through its 200-dma - a technical level closely
monitored by institutions - I would speculate that it would
migrate towards the $80 level.
----------------------------
McDATA - MCDT
I have been watching McData (MCDT) for a while. It is extremely
volatile and has great premiums because of this. My picks on
CC's [covered calls] and NP's [naked puts] has been profitable
but blind and lucky. Please submit a graph that would show
trendlines and any pertinent short/long term guidance. - Shane
Shane, I must admit that I don't follow McData (NASDAQ:MCDT)
very closely. Consequently, I don't know much about the
company. And as a shareholder of Emc (NYSE:EMC) I'm a little
embarrassed to admit that to you. But, I thought I'd be honest.
In case you didn't know, McData is/was a unit of Emc that was
taken public last August. I believe Emc is distributing about
74% of its common stock in McData to shareholders in early
February. I haven't received the details of the distribution
yet, but I wouldn't expect that event to negatively impact MCDT.
Now that I've got my confession out of the way, Shane, let's
tackle your succinct request. Let me start by pointing out
the badness on MCDT's chart. The stock has been in a severe
downtrend since early September and hasn't been able to
breakout to the upside. I can see three distinct descending
trends that MCDT needs to break above. These trend lines can
be useful in looking for entry points for new long stock or
naked puts if MCDT breaks above them. The trend lines can
also be useful in determining just how strong the bulls are
and their willingness to advance MCDT.
Also worth pointing out on MCDT's chart is the pattern of
relatively higher lows, which has been forming over the past
four weeks. Like a coiled spring getting tighter and tighter,
MCDT's narrowing trading range has to give one way or the
other. As long as the ascending support line holds, MCDT
should breakout above its near-term descending trend line in
the coming weeks. However, a lot of MDCT's directional
movement will depend upon its earnings report next week, along
with numbers from Emc. Watch for the supporting trend line
to continue to carry MCDT higher. If it does, MCDT should
breakout from its near-term trend line and test its
intermediate-term trend line. But if the ascending support
line doesn't hold, I would expect a retest of the $40 level.
----------------------------
Xilinx - XLNX
With the semiconductors breaking its down trend and Xilinx
forming a wedge on its daily chart do you see room to run? I'm
still not sure whether it's time to step into tech but I value
your opinion. - Kevin
I'm humbled that you value my opinion, Kevin. That means a lot!
I can relate to your uncertainty in the tech sector, Kevin. As
you know, I postulated about three weeks ago that tech would
remain dormant for the first half of 2001. I blew that call!
But enough with my errors! Xilinx (NASDAQ:XLNX) represents
another interesting study in the here and now. The company
warned late last year, sometime around late November/early
December - I was trading puts on XLNX right around its
warning. And if you recall, after XLNX warned, the stock
subsequently traded higher. Last Thursday, Xilinx missed
the estimates it had lowered late last year by one penny.
And the day after the warning (Friday), the stock didn't
perform all that badly given the earnings miss - XLNX finished
only fractionally lower. Let's take a step back. Two
earnings blow-ups and XLNX is now on the verge of breaking
out from a highly visible wedge. Interesting, isn't it?
Let's address that wedge you referred to, Kevin. It's
highly visible and I guarantee that we're not the only ones
who see it. When technical patterns develop like the one in
XLNX, that are so obvious, the market has a tendency to test
traders' emotions with bull traps, bear traps, head fakes and
whipsaws. That said, I would suggest to approach XLNX with
discipline and defined risk. However, I think XLNX breaks
out, but that's just my very humble opinion!
If XLNX is going to breakout above its wedge, it will need
the SOX's help. And by the looks of it, the SOX wants to
trade higher. The chip index broke above the key 700
resistance level last week and now looks poised to test
750. If the SOX breaks out over 750, then XLNX breaks out
of its wedge.
----------------------------
PMC Sierra - PMCS
Your comments on PMCS please? When do you think the right time
to buy the call? - Thanks, Sunil
Thanks for writing in again, Sunil.
Here's something to think about with PMC Sierra (NASDAQ:PMCS).
Cisco Systems' (NASDAQ:CSCO) CEO, John Chambers, effectively
warned at a tech conference in Scottsdale, Arizona about two
weeks ago. Chambers said that visibility was not very clear
going out six to nine months. Translation: Cisco is seeing
a slowdown. If Cisco is experiencing a slowdown, wouldn't it
make sense that PMC Sierra is also seeing a slowdown? After
all, Cisco is one of PMCS' largest customers. Now I know I
reviewed Cisco last week, and suggested that the market may
have it wrong in punishing the stock. And I still believe
that much. But, the question is how much of the bad news
is already discounted into Cisco's and PMCS' share prices?
And how long before business substantially picks up again
and the stocks rally? I don't have the answers to either of
those questions - I wish I knew.
To be perfectly honest, Sunil, I think the most prudent
approach would be to wait for PMCS' earnings report this
Thursday. Listen very closely to the guidance the company
gives and pay close attention to how the market receives
its report.
From a purely technical standpoint, shares of PMCS have made
some substantial strides over the past three weeks. Last
Thursday, the stock finally broke out from its descending
trend line, and at the same time, advanced above the 50-dma.
The technical improvements are encouraging, but I maintain
that PMCS is a tough game right here. But don't get me wrong,
I'm by no means bearish on the stock. It's just difficult to
quantify the risk and reward right now.
----------------------------
DISCLAIMER:
This column is an information service only. The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind. The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options. It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security. The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.
www.OptionInvestor.com
*************
COMING EVENTS
*************
For the week of January 22, 2000
Monday
======
Leading Indicators Dec Forecast: -0.30% Previous: -0.20%
Treasury Budget Dec Forecast: $32.0B Previous: $33.1B
Tuesday
=======
SEMI Book-to-Bill Ratio Dec Forecast: NA Previous: 1.12
Wednesday
=========
Oil & Gas Inventory 19-Jan Forecast: NA Previous: 287.3MB
Thursday
========
Initial Claims 20-Jan Forecast: 330K Previous: 306K
Employment Cost Index Q4 Forecast: 1.10% Previous: 0.90%
Existing Home Sales Dec Forecast: 5.05M Previous: 5.22M
Online Help wanted Indx Jan Forecast: NA Previous: 115.9
Friday
======
Durable Orders Dec Forecast: -1.50% Previous: 2.50%
Help-Wanted Index Dec Forecast: NA Previous: 75
ECRI Weekly Index 19-Jan Forecast: NA Previous: -5.3%
Week of January 29th
====================
Jan 30 Consumer Confidence
Jan 31 GDP-Adv.
Jan 31 Chain Deflator-Adv.
Jan 31 Chicago PMI
Jan 31 New Home Sales
Feb 01 Auto Sales
Feb 01 Truck Sales
Feb 01 Initial Claims
Feb 01 Personal Income
Feb 01 PCE
Feb 01 Construction Spending
Feb 01 NAPM Index
Feb 02 Nonfarm Payrolls
Feb 02 Unemployment Rate
Feb 02 Hourly Earnings
Feb 02 Average Workweek
Feb 02 Factory Orders
Feb 02 Mich Sentiment-Rev.
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1437
**************************************************************
FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.
The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.
We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.
To subscribe you may go to our website at
www.OptionInvestor.com
and click on "subscribe" to use our secure credit
card server or you may simply send an email to
"Contact Support"
with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.
You may also fax the information to: 303-797-1333
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter Sunday 01-21-2001
Sunday 2 of 5
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/012101_2.asp
**************
TRADERS CORNER
**************
It's Not Too Late To Make Money This Earning's Season
By Renee White
Great Week! We survived this week with little effort, mostly
because expectations were so low. Those who took punishment early
on, warning investors to be realistic about a slowdown, were
spared being tarred and feathered. Bad news turned into good news.
This week was better than I expected. Since many entered the
market on the low of January 3rd, which happened to also be our
surprise rate cut day, I expected more whip-saw action this week
in order to wean out many of those call contracts that were
expiring. Sometime mid week, I heard that Fear and Cautiousness
had now over taken irrational bullishness by many traders. At
that time, I realized there was a transition happening that would
be played out in the near future. Changes in the psychology of the
market, never happen as an exact turning point. I believe it is
more of a lagging indicator and this time I was the one lagging.
While watching the market today, it was obvious to me that I was
not alone. This is a very good sign because regardless is you were
bullish or bearish this earnings season, you probably have been
able to make money.
Going into this week, I was more concerned with the potential
damage from many CEOs guiding analyst's estimates downward for
2001, during their post-earnings conference calls. I've never (yet)
felt fear of a recession, but the outlook by business leaders
meant more than my opinion. Preferring to err on the side of
caution, (read that: being chicken), I did not load up with
bullish January plays and from the look of things, neither did a
lot of big money either.
Last week, I mentioned my choice would be playing the downside
risk. Early week, that risk seemed too high so I waited. Volume
was strong and advancers beat decliners daily, in the Nasdaq market
where I wanted to play. Last Friday, we pulled back after tapping
resistance at the down trending upper trend line. Tuesday opened
weak and Wednesday we gapped over the channel line, then tapped
the upper Bollinger Band, before pulling back slightly again.
Thanks to Juniper and IBM, strong volume kept the rally moving,
but probably left more than a few institutional buyers sitting on
the sidelines waiting for entry points.
I waited till late Thursday to start putting collars around
long shares, and writing covered calls. Today though, I started
entering puts. At first, I entered to protect profits in long
shares, but as I reviewed charts, I added more plays, believing
a pull-back is due. Volume was still strong but declining issues
edged out advancers.
We have had a great run since the lows of January 3rd. It's hard
to believe Nasdaq has gained over 25% (at its high today), in just
2 1/2 weeks after a new lower low was set on the 3rd. YAHOO
(NASDAQ: YHOO) gained over 35% since its low 8 days ago on January
11th and Lucent (NASDAQ: LU), needing a little bit more time, has
had an incredible 75% gain since its low on December 21st. With
Nasdaq closing near its 50dma, I felt entering plays with a
downside bias was safer. We may all be itching for recovery, but
even stocks pause for air when they run too fast. Still, it is a
risk. We have now had 2 winning weeks in a row.
If you looked at today's Nasdaq chart, you will see big volume
selling for the first hour of the day. It was later mentioned that
many hedge funds were shorting the open, expecting a hefty
pullback after the nice run this week. However, there seemed to be
a technical problem with their play and short they sat, without
causing the sell-off they expected. Evidently, many delayed entry
for the week so there were few sellers to be found to continue the
sell-off. The buyers then kept things more neutral for the rest of
the day. The good news for bulls is that this points to strength
in sentiment going forward. The bad news for bulls is that I
didn't notice these shorts doing major covering to exit their
positions. Perhaps it was disguised in the neutrality of the
balance of the day.
Regardless, when too many people line up on one side of the
market, usually the opposite thing happens. For me, too many
things were pointing north in awe of recent gains. The bad news
for bulls still holding February positions is that nothing goes
straight up forever. These recent runs are ready and ripe for
profit taking. The last one holding February calls will once
again watch their fat profitable premiums vaporize by holding too
long. Time decay will drastically start eroding those premiums
faster than a hummingbird winks. Those who lost money from holding
too long throughout last year, are soon to be tested to see if
they learned any lessons about selling into strength for profits.
Sometimes following the trend is confusing, leaving you at a fork
in the road if you are at the end of the pack.
In my opinion, it is unclear if we are in a dead cat bounce or a
true recovery. My guess is an unconfirmed recovery, with a fall to
a solid support line needed in order to be convincing. As I
mentioned last week, the telling will come by late February.
I have been very concerned over the drastic measure of our large
rate cut in early January, just weeks after moving from an
inflationary bias to a recessionary caution, after skipping
right through a neutral bias in December. Since that drastic cut
which came out shortly after the NAPM numbers were released this
month, earnings haven't been as bad as many expected. Even those
companies, who warned early, seemed to hold their 2001 outlook to
the prior estimates. Some new leaders still revised their 2001
outlook, upwards. I was pleased that the forward outlook was not
as weak as many had feared. In the months to come, the fear in
the market will be replaced with logical reasoning.
Logical reasoning does not mean irrational exuberance though. With
a rally as strong as we have seen, many should be asking
themselves when will this end? We have an FOMC meeting at the end
of this month, with an expected rate cut. Can we go another 10
days without a breather? I doubt it. We must plan our trades with
caution at this time, regardless of our bias.
The Philadelphia Fed Index reported today showed its lowest level
since the September 1990 recession month. This is one of the
biggest drops in history. Since in some ways, this is a
preliminary reading to the NAPM, it gives weight to an additional
1/2 point cut by the Fed to ward off a recession. Two 1/2 point
cuts by our Fed in one month, is drastic and would surely front
load the rate cutting cycle for business interests. I have not
been expecting more than 1/4 point before this economic report
came out, but now I am more uncertain. On the one hand, we have
businesses telling us their revised estimates are intact (for the
most part) for 2001, yet we are starting to see rapidly
accelerating, worsening economic reports. It was reported that
there were 676 Pre-Earning's warnings for this year's 4th quarter,
up a whopping 92% from 4th quarter last year. In addition as of
Thursday, 40 companies had already warned for the 1st quarter
2001, compared to 8 last year at this time. Clearly, businesses
have felt the "heat" from oil prices surging, dot coms burning,
and those interest rate increases, which seemed to never end.
Mixed signals combined with liquidity and rate cuts from the Fed,
can easily make trading fun and profitable again.
From here though, we must plan our trades. Unless you are hedged
in both directions, to play, you must decide which way the odds
will be in your favor. Don't be callous picking trades. Have a
reason for choosing them and clearly define your support and
resistance levels for the underlying stock, the index it trades
with, and the general market. All three are important with the
least important being your one particular stock. Since margin debt
has come down some 30% since the highs of March, many traders have
learned how to take profits into strength. If you haven't, they
will practice their newly developed skills at your expense.
If you are buying at resistance levels, or holding gains while
falling through support levels, then your lessons from last year's
pain are not over yet. Make decisions on your plays based on study
and analysis. If you are wrong, learn when your decision was in
error. Cut your losses as early as you realize you initial plan is
not working. Learn to listen to your gut. If you start feeling
queasy about a play, it may very well be intuition telling you
that you've been down that path before and lost money. It may be
choppy going forward for a while.
Fiber optics and storage may prove strong this week. I don't think
it is too late to make money this earning's season, possibly in
either direction. I've placed my trades expecting a pullback soon.
Personally, I don't think we can climb straight into the FOMC
meeting. I think there is too much risk there. Everyone is
expecting a cut and most expect another 1/2 point. Even if next
week stays up, rallying into the meeting will create an
opportunity for "selling on the news", or "selling on
disappointment" if we get only 1/4 point. The odds are in the
favor of a pullback because few traders will risk losing recent
gains, by holding over the announcement. Also, as uncertainty
develops during the week about the size of the cut, many will
exit early in order to wait for the announcement before placing
new trades.
I've chosen to stay away from shorting those sectors expecting
to report strong earnings next week, which include those in
storage, fiber optics and software. However, once their earnings
are out, I may short them also. If next week performs perfectly
for me, it will pull back early in the week for a few days. I'll
take my profits from this week and I'll short any high flyers
reporting next week that look ready to roll over. Then I'll sit
back and re-evaluate things closer to the meeting. February is
my indicator month for plays going forward. I would rather err
on the side of caution until we get through the February period.
We were very over-sold, but we can still run up too fast.
Remember, we do not know if we are in a dead cat bounce, or the
start of recovery. We all want the same thing but the market must
prove it to us. A sell off in February, bouncing at a higher low
than January 3rd would do the trick for me. That may even be my
2003 Leap entry point on companies that revised estimates to the
upside for 2001.
Regardless of your bias, have a plan that encompasses both
directions in the market. Preparation is priceless in trading.
Get better at protecting all profits and vow never to get lazy
after a great rally again. Plan your trades; know both your
entries and exits. Profits come when you sell your gains into
rallies. Losses come from waiting and holding too long.
On a personal note, thanks to those who took the time to send a
complimentary note about my return to writing. They were sincerely
appreciated.
*****
Head and Shoulders Knees and Toes
By Lynda Schuepp
My daughter is now a teenager, but I am still haunted by that
children's' song: "Head and Shoulders, Knees and Toes "only this
time it's a chart pattern. The head and shoulders chart pattern
is a powerful one, particularly if it encompasses a long time
frame. Insurance stocks such as AIG and Chubb were killed last
week "on nothing other than sector rotation," claimed one fund
manager quoted in an article I read. Both of these stocks
displayed very strong head and shoulders patterns. Below are
their weekly charts. I find it is easier to see the pattern if
you use a line chart rather than candles.
Weekly Line Chart of AIG:
Weekly Line Chart of CB:
CB's head and shoulder's patterns spans from October to the end
of December. As you can see from the chart below, the top of the
head (90) was reached at the end of the first week of December.
The right shoulder was formed during December and the neckline was
broken at the end of last year. The neckline break is critical
point. Most of the time, the price hits that neckline point and
bounces. If it doesn't bounce, look out below. When a stock breaks
the neckline in a head and shoulders pattern, one can project how
far the stock can be expected to drop. You simply measure the
vertical distance from the top of the head down to the neckline.
This number is subtracted from where the price breaks the neckline.
Let's figure the projections on the CB chart below:
As you can see from the line chart above, one could expect CB to
drop at least 10 points from the break in the neckline. If you
were buying a put or shorting the stock here, you would probably
want to put an alert or sell order in (if you don't trade actively)
just above the projection at about 73. However, in this case the
stock dropped even further. Looking at AIG we see a similar
pattern. Birds of a feather flock together. Because I trade AIG
regularly and have written about it before, I will look at it to
see if there are any opportunities with it. Let's look at a
weekly candle chart of AIG to study its price patterns.
Weekly Candlestick Chart of AIG:
From the chart above, we can see that AIG trades in a 10 point
channel and did so for 9 months. It has repeated this pattern
endlessly over its long history after a period of wild gyrations.
I tend to do covered calls and butterflies on this stock because
of these patterns. Looking at the stock at of the end of this
past week, we see a tremendous drop and it closed at about the 200
day moving average. Volume has been increasing as the price has
been dropping these past two weeks, so my bet is that we will see
the next level down which would be the green support line at
78.75 where it held for 6 weeks back in June. This would be a
logical bottom if the 200 day doesn't hold. I would wait until I
have a clear signal before entering any trade on this stock.
Since this stock has a history of trading in 10 point bands, I
would be ready to put on a 10 point spread butterfly with an
upward bias, since overall this stock has never disappointed or
surprised with earnings. Earnings are due about February 10th.
Looking at the various option prices for both calls and puts using
calls is cheaper. A call butterfly spread is the purchase of a
long call (lower wing), the sale of 2 short calls (body) at a
higher strike and the purchase of a long call (upper wing) above
the middle strike. Strikes are equidistant and can be down with
either calls or puts, depending on which is cheaper. By placing
legs on difference exchanges, I could do a February 80-85-90 for
about $1400 for 10 contracts, if I thought AIG would close at 85
by February 16th. The risk/reward is about 2.5 to 1, not bad but
not great. If I were a little more bullish, I could do the
85-90-95 for about $1300 of about 2.8 to 1 odds.
A more conservative approach would be to go out to May and do an
85-90-95 butterfly for about $875. My risk/reward odds would be
4.7 to 1, now that I like. Next week's action will dictate which
prices I will choose. Even if I do the May butterfly, it is highly
doubtful that I will keep it that long. I tend to trade the legs
based on the direction of the stock. If the stock goes down and
bottoms, I will buy back the short calls (body) and ride the long
calls (wings) back up. If the stock goes up I can close out the
position for a small loss, or keep the bottom bull call spread and
sell the top bear call spread and hold out for break-even.
Happy butterfly hunting.
***********
OPTIONS 101
***********
No options 101 this weekend
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1438
**************************************************************
********************
THE PLAYS OF THE DAY
********************
Call Play of the Day:
*********************
SLR - Solectron Corporation $41.95 (+3.33 last week)
See details in sector list
Put Play of the Day:
********************
BA - Boeing $55.69 (-4.94 last week)
See details in sector list
***********************ADVERTISEMENT************************
Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR
http://www.sungrp.com/tracking.asp?campaignid=1425
************************************************************
**************************
PICKS WE DROPPED THIS WEEK
**************************
Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.
CALLS
EMC $77.31 (+8.50) EMC has given us a beautiful call play over the
last week, as the stock proceeded gracefully through its upward
channel established last Monday. However, all good things must
come to an end someday, and, since EMC is scheduled to report
earnings on Tuesday before the close we are dropping it this
weekend. Traders can sell into strength on Monday to exit
positions prior to the open on Tuesday, as we do not
recommend holding over earnings.
VRSN $79.44 (-5.44) Despite having every reason to rally on
Friday, shares of Verisign closed the day down $12.50 or 13.6
percent on over 145% of ADV. While peer RSAS advanced following
its earnings report, which topped Street estimates and CHKP moved
higher in sympathy, VRSN gapped up at the open and spent the rest
of the day falling on increasing volume to close near its low for
the day, with no news to explain the drop. Candlestick fans will
note the resulting bearish engulfing stick reversal while moving
average watchers no doubt noticed that Friday's drop put VRSN
back below its 5, 10 and 50-dma (at $84.62, $79.87, $92.46). Add
to that the close below our stop price of $82 and we have little
choice but to cut this play loose.
AEOS $44.75 (-4.50) An earnings warnings from Home Depot (HD)
and a soft 4Q reported by Sears (S) wrecked havoc across the
retail sector. AEOS experienced a $4.50, or 9.1% cut on heavy
volume in Friday's session. The sell-off quickly took the stock
below the supportive near-term DMAs and our $47 protective stop.
Needless to say, AEOS makes the drop list this weekend.
BEAS $63.38 (+0.83) The past week has been a disappointment for
BEAS investors, as the stock has been unable to make significant
progress. Despite a NASDAQ that managed to put on a strong
rally, our play has meandered aimlessly between $61-68. It
appears the bulls didn't have enough conviction to sustain a
rally over the converged 30-dma ($65.25) and 50-dma ($64.94), as
these two averages have conspired to reinforce the resistance
between $65-67. With Stochastics and MACD weakening, we will
take our leave of BEAS before the rollover begins in earnest.
PUTS
MRK $82.44 (+1.00) While our put play in Merck is still below our
stop price of $84, and moving average resistance from the 10-dma
(at $82.69) continues to hold, the stock has settled down,
trading between lower support at $80.50 and upper resistance at
$84.50. A range this narrow is a challenge at best for option
players, and with the time decay factor and recent excitement in
Tech stocks working against us, the lack of volatility no longer
makes this an attractive play. While the stock appears to be in
the midst of a small wedge formation, indicating a large move
coming soon, the uncertainty in the direction of that move and
the myriad of better prospects out there makes the decision of
moving our money elsewhere a simple one.
***********
DEFINITIONS
***********
SL = Suggested stop loss. Sell if bid breaks this price.
OI = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;
Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"
Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.
**************
NEW CALL PLAYS
**************
MERQ - Mercury Interactive $95.38 (+13.88 last week)
As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business. The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing. MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.
A stellar earnings report, bullish future guidance, and a
rallying NASDAQ helped shares of MERQ to rally strongly this past
week. Posting results for the fourth quarter this past
Wednesday, the company easily topped Street estimates of 24
cents, with EPS clocking in at 28 cents per share. Positive
comments from the CEO as well as a raised outlook for the next
quarter and for the entire year ignited investor interest, as the
stock advanced on heavy volume following the report. Prudential
Securities re-iterated their Strong Buy rating while CE Unterberg
downgraded the stock to a Buy on valuation concerns. Despite the
clash of words and a flat day for the NASDAQ, MERQ added another
$4.88 or 5.39 percent to its gains on over 120% of ADV to end the
week. Looking ahead, resistance overhead could be formidable,
with the 200-dma at $99.22 and the psychological century mark.
More conservative traders will want to wait for a break above
$100 on volume before making a play, confirming positive
direction with sector peers BMCS and CPWR. For higher risk
players looking to get in early, moving average support from the
5 and 50-dma (now at $85.53 and $89.44 respectively) along with
horizontal support at $95, $90 and $85 could be targets to shoot
for but as always, confirm bounces with buying volume. We are
placing a protective stop at the $88 level, near the bottom of
MERQ's recent uptrend channel. Make sure that the stock
continues to close above this level as a close below could be
sign that momentum has waned.
BUY CALL FEB- 90 RQB-BR OI=253 at $14.75 SL=11.00
BUY CALL FEB- 95 RQB-BS OI=202 at $12.25 SL= 9.25
BUY CALL FEB-100*RQB-BT OI=297 at $ 9.75 SL= 7.00
BUY CALL APR- 95 RQB-DS OI= 54 at $20.88 SL=15.00
BUY CALL APR-100 RQB-DT OI=387 at $19.00 SL=13.75
SELL PUT FEB- 85 RQB-NQ OI=522 at $ 6.25 SL= 8.75
(See risks of selling puts in play legend)
http://www.premierinvestor.com/oi/profile.asp?symbol=MERQ
ORCL - Oracle Corporation $34.56 (+2.25 last week)
Oracle Corporation is the world's leading supplier of software
for information management, and the world's second largest
independent software company. With annual revenues of more than
$10.1 billion, the company offers its database, tools and
application products, along with related consulting, education,
and support services, in more than 145 countries around the
world. Oracle is the first software company to develop and
deploy 100 percent internet-enabled enterprise software across
its entire product line: database, server, enterprise business
applications, and application development and decision support
tools.
There is little doubt that Oracle is currently the Gorilla of the
B2B space. While companies such as ARBA, CMRC and ITWO have been
battling it out, the sector has gone through some unexpected
fundamental shifts, with Larry Ellison and Co. appearing to come
out on top. The results of the recent changes to the landscape
can be seen in stock prices. As investors have discovered that
supply chain management is where it is at, shares of
e-procurement software maker ARBA have languished while
logistics-focused ITWO and MANU have edged higher. Recently,
ORCL has made some major in-roads into this domain and it appears
that its efforts are succeeding. On Wednesday the company
announced that the world's second largest office manufacturing
company Haworth replaced its ITWO system with Oracle's E-Business
Suite. Covering a broad range of B2B applications, ORCL has the
competitive advantage of providing a single solution to a host of
customer needs. On Thursday coverage was initiated by Pacific
Crest with a Buy rating, helping the stock to break above its
100-dma, now near $33. Look for this area to provide moving
average support as well as the 5 and 10-dma at $33.15 and $32.33
respectively. Aggressive traders may also find support in
increments of $0.50 from $34.50 to our stop price of $32. A
break above $35 could allow conservative traders to enter this
play, setting ORCL up to challenge its last line of moving
average resistance from the 200-dma at $36. Use the NASDAQ 100
(QQQ) to gauge sentiment in the large cap Techs before jumping
in.
BUY CALL FEB-30 ORY-BF OI= 5981 at $5.75 SL=3.75
BUY CALL FEB-35*ORY-BG OI=17192 at $2.38 SL=1.25
BUY CALL FEB-40 ORY-BH OI= 6649 at $0.75 SL=0.00
BUY CALL MAR-35 ORY-CG OI=15642 at $3.88 SL=2.50
BUY CALL MAR-40 ORY-CH OI=15481 at $1.88 SL=1.00
http://www.premierinvestor.com/oi/profile.asp?ticker=ORCL
BRCD - Brocade Communications $105.00 (+14.88 last week)
Brocade Communications is a provider of Fibre Channel switching
solutions for Storage Area Networks (SANs), which apply the
benefits of a networked approach to the connection of computer
storage systems and servers. The company's family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements and improve the performance
between their servers and storage systems. This provides the
ability of increasing the size and scope of a company's SAN,
while allowing them to operate data-intensive applications,
such as data backup and restore, and disaster recovery on the
SAN.
Perhaps the third time's a charm. After falling out of bed with
the rest of the Technology sector in November, the bulls have
been valiantly fighting to prop up BRCD's share price.
Pressured by fears of a slowing economy, BRCD posted a low of
$65.75 on January 3rd, the day of the surprise interest rate
cut. It only took a few days of indecision, and investors
started piling back into BRCD, driving the stock as high as
$106.38 on Friday. With the rally last week, it makes the third
time the bulls have attempted to push the stock over the
declining 50-dma ($94.56), and it looks like they might actually
pull it off this time. Sure the price is riding the upper
Bollinger band, and the daily stochastics have just entered the
oversold region, but we are in the midst of earnings season, and
every report seems to be adding more enthusiasm for the bulls.
Adding to the strong bullish argument is the fact that volume
has been running well over 150% of the ADV and showing no signs
of letting up. Add in a new Thomas Weisel Buy rating on January
9th and a bullish earnings report from NT, and you can see why
BRCD has tacked on over 30% in the past 2 weeks. With the
200-dma ($91.13) and the 3-month descending trendline ($96)
firmly in the rear-view mirror, it looks like our play is headed
back to challenge the $115 level in the near future. Before you
run out to buy calls, keep in mind that the stock is a bit over
extended here, and we would like to see a bit of a pullback
before initiating new positions. With support between $95-97,
and the addition of the trendline, BRCD should be able to put in
a nice bounce above our $95 stop - just right to allow
aggressive investors to get on board before the next stage of
the rally gets underway. The rally in the Networking index
(NWX.X) has been helping BRCD along (or is it the other way
around?), so confirm strength there before playing.
BUY CALL FEB-105*GUF-BA OI= 371 at $11.75 SL= 8.75
BUY CALL FEB-110 GUF-BB OI= 2717 at $ 9.50 SL= 6.75
BUY CALL FEB-115 GUF-BC OI= 372 at $ 7.75 SL= 5.50
BUY CALL APR-110 GUF-DB OI=15641 at $17.00 SL=12.25
BUY CALL APR-115 GUF-DC OI= 532 at $14.25 SL=10.50
BUY CALL APR-120 GUF-DD OI= 1431 at $13.75 SL=10.25
SELL PUT FEB- 95 GUF-NS OI= 339 at $ 6.38 SL= 9.00
(See risks of selling puts in play legend)
http://www.premierinvestor.com/oi/profile.asp?ticker=BRCD
CIEN - CIENA Corporation $104.81 (+14.94 this week)
Helping to satisfy our insatiable demand for bandwidth, CIEN
makes dense-wavelength division multiplexing (DWDM) systems for
use with long-distance fiber-optic communications networks.
CIEN offers optical transport, intelligent switching and multi-
service delivery systems that enable service providers to
deliver and manage high-bandwidth services to their customers.
The company's MultiWave DWDM systems allow optical fiber to
carry up to 40 times more data and voice information without
requiring more lines. CIEN's customers include long-distance
carrier, competitive local exchange carriers (CLECs), Internet
service providers and wholesale carriers.
Positive earnings reports this past week have kicked the
Networking sector (NWX.X) into a sustained rally that has helped
CIEN to finally clear its descending trendline. Resting at $99
now, the fact that the bulls were able to scale this level on
Thursday and then hold onto those gains, marks an important step
in our new play's move out of its 12-week downtrend. The first
sign that things were on the mend was on Wednesday, when the
stock cleared its 50-dma (then at $89.63), and the icing on the
cake was the additional $7 gain in the last two days of the
week. Closing near the high of the day on Friday, CIEN has now
climbed 46% in the past 6 trading sessions. Can you say profit
taking? Sure you can, and it could be lurking just around the
corner, now that CIEN is resting right up against its upper
Bollinger band and stochastics have moved into overbought. It
wouldn't surprise us to see some profits come off the table
early next week, but this will likely give us just the entry
point we are looking for. With resistance looming near $106,
the overbought condition of the stock could open the door for a
quick drop to support near $100 or even the level of our stop at
$94. But with the returning strength of the Optical stocks,
prompted by strong earnings from the likes of NT and AMCC, and
the Fed likely to drop rates again by the end of the month, any
such drop is likely to be short-lived. Aggressive traders can
target shoot any such dip, so long as the bulls step in to
support the price above our stop. Continuing strength in
Networking stocks could even give us a decent entry if it
produces a volume-backed move above Friday's high of $106. For
you stock split hounds out there, CIEN announced on Friday that
there will be a special shareholder meeting on March 14th. On
the agenda will be a proposal to increase the number of
authorized shares from 460 million to 980 million.
BUY CALL FEB-100 UEE-BT OI=2329 at $15.75 SL=11.25
BUY CALL FEB-105*UEE-BA OI= 955 at $13.50 SL=10.25
BUY CALL FEB-110 UEE-BB OI=2031 at $11.13 SL= 8.25
BUY CALL FEB-115 UEE-BC OI= 500 at $ 9.00 SL= 6.25
BUY CALL APR-110 UEE-DB OI=1643 at $19.13 SL=13.75
BUY CALL APR-115 UEE-DC OI=1395 at $17.25 SL=12.50
SELL PUT FEB- 90 UEE-NR OI=2290 at $ 6.13 SL= 8.50
(See risks of selling puts in play legend)
http://www.premierinvestor.com/oi/profile.asp?ticker=CIEN
A - Agilent Technologies Inc $65.56 (+9.44 last week)
Agilent is a diversified technology company that provides
solutions to high growth markets within the communications,
electronics, healthcare and life sciences industries. They're a
leading maker of analysis equipment with 51% of sales deriving
from its Test and Measurement Unit. Recently Philips
Electronics agreed to buy Agilent's Healthcare Solutions for
$1.7 bln. Customers include AT&T, Cisco, and Pharmacia.
Momentum and technical traders alike should take notice of A's
fantastic breakout this week. The stock price soared 16.8%, or
$9.44 on nearly double the ADV and shattered the choking
resistance at the $60 level and its 200-dma ($61.21)
counterpart. The NASDAQ's strength above 2600 and the
technology sector's revival coupled with the recent breakout
makes for a good argument to take A long. But more
specifically, the company's announcement on January 16th that it
completed its merger with ATN Microwave was also an effectual
catalyst that incited the upswing. From a technical
perspective, if A can continue its strong uptrend and
confidently close last July's gap, then our next objective would
be to challenge $80! A volatile day in the markets could see A
pullback to $60 and $61, in the vicinity of the now intersected
5 and 200 DMAs, but make sure buyers step in before taking an
entry at that level. Better yet, consider using the current
price level at $65 as a launching pad, if the stock continues to
demonstrate spunk and rallies above the immediate resistance at
$68. As you plan your entries and exits, watch Agilent's
competitors for overall direction and sector sentiment. Some
rivals include Plexus (PLXS), Solectron (SLR), and ACT
Manufacturing (ACTM).
BUY CALL FEB-60 A-BL OI=1589 at $8.38 SL=6.00
BUY CALL FEB-65*A-BM OI=1910 at $5.50 SL=3.50
BUY CALL FEB-70 A-BN OI=2521 at $3.50 SL=1.75
BUY CALL FEB-75 A-BO OI= 680 at $2.00 SL=1.00
http://premierinvestor.com/oi/profile.asp?symbol=A
***********************
NEW LOW VOLATILITY CALL
***********************
APCS - Alamosa PCS Holdings Inc $17.13 (+1.56)
Alamosa PCS Holdings is part of the Sprint PCS network, which
provides wireless services in more than 4,000 cities and
communities across the country. The Company has the exclusive
right to provide digital wireless personal communications
services under the Sprint and Sprint PCS brand names in its
territory of the southwestern and midwestern US.
What a nice run! This lesser-known piece of the Sprint PCS pie
reported outstanding earnings on January 9th and has since made
significant advances amid exceptional trading activity. The
company, which in 1999 was the Sprint PCS Affiliate of the Year,
announced greater than expected year-end combined subscribers of
166,127 on combined net customer additions of 58,121. Churn for
the 4Q was approximately 2.9 %, which represents a decrease from
the 3Q rate of 3.4%. CEO David E. Sharbutt stated that "we are
very pleased with our subscriber growth and lower than expected
churn, both of which exceeded expectations" as well as with "the
results of Roberts and WOW markets" - Roberts' Wireless
Communications and Washington Oregon Wireless. Next month, it's
expected that these two entities will merge with Alamosa PCS
Holdings under the recently announced $305 million credit
facility commitment. Going forward, we expect to see shares of
APCS continue to rise on the building momentum and good news.
Friday's strong move through $17 on double the normal volume and
its very bullish close smack on the intraday high hints there
may be additional gains this week. It's true that there could be
some profit taking; especially considering the stock's rapid
rise from its post-Christmas low of $6.13, but we're optimistic
going forward. A high-volume rally through the upper resistance
at the 200-dma ($18.38) and the $20 level would provide better
confirmation that APCS can make a charge for the overhead
resistance at $25. And of course, a continuing positive bias
within the telecom sector and an advancing marketplace are
essential factors to consider before beginning new plays.
Lower entries might be found near the 5-dma, which is currently
at $15.76, as it traces the stock's upward movements. Support
is much firmer at the $14 level, just above the 10-dma ($13.46);
although it may be wise not to take an entry below our
protective stop of $15, unless you're willingly to chance
getting stuck in a consolidation channel.
BUY CALL FEB-12.50 CUT-BV OI=13 at $4.88 SL=2.75
BUY CALL FEB-15 *CUT-BC OI= 4 at $3.00 SL=1.50
BUY CALL FEB-17.50 CUT-BW OI= 0 at $1.63 SL=0.75 Wait for OI!
BUY CALL APR-15 CUT-DC OI=12 at $4.25 SL=2.50
BUY CALL APR-17.50 CUT-DW OI=58 at $3.00 SL=1.50
BUY CALL APR-20 CUT-DD OI=27 at $1.50 SL=0.75
http://www.premierinvestor.com/oi/profile.asp?ticker=APCS
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?
Learn how to invest in the OEX, QQQ, and SPX. Get intraday
market updates, plays, education and daily commentaries by
those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1413
************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter Sunday 01-21-2001
Sunday 3 of 5
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/012101_3.asp
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1439
**************************************************************
******************
CURRENT CALL PLAYS
******************
RATL - Rational Software $46.75 (-0.88 last week)
Rational Software Corporation, the e-development software
company, helps organizations develop and deploy software
for e-business, e-infrastructure, and e-devices through a
combination of tools, services, and software engineering
best practices. Rational's e-development solution helps
helps organizations overcome the e-software paradox by
enhancing time to market while improving quality.
RATL sold off on profit taking Friday, but maintained the
consistent pattern of higher lows which it established
since reporting earnings which were much higher than the
analysts expectations on January 10th, as well as upwardly
revised 2002 forecasts. Rational’s revenue grew at 47%
year-over-year, which was the highest level in three
years, and 15% sequentially. Rational has continued to
maintain a broad and deep customer mix, with no customer
accounting for over 5% of Rational’s revenues. Their
suite bookings were up 85% year over year, and at this
points, the majority of analysts have revised their price
targets upward. CSFB increased their Q1 revenue estimates
up to $253 million from $243 million. The low for RATL
this week was $44.38, which is above the 200 dma of $43.78,
and the 50 dma of $42.06. A pullback to strong support at
$45 is possible, and would be an entry point for aggressive
traders if it occurred with strength in the Nasdaq and
software index. A break and close over $50 with strong
volume would be a very bullish indicator. Watch other
software stocks like MSFT, and ORCL for an indication of
strength in the sector. Keep stops set at $44, as a break
below this level could indicate a reversal of the upward trend.
BUY CALL FEB-50*RAQ-BJ OI=339 at $4.13 SL=2.50
BUY CALL FEB-55 RAQ-BK OI=140 at $2.50 SL=1.25
BUY CALL APR-50 RAQ-DJ OI=201 at $8.13 SL=6.00
BUY CALL APR-55 RAQ-DK OI=230 at $6.50 SL=4.50
http://www.premierinvestor.net/oi/profile.asp?ticker=RATL
BRCM - Broadcom Corporation $130.06 (+6.88 last week)
Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband digital transmission of voice,
video and data to and throughout the home and within the business
enterprise. These integrated circuits permit the cost-effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed
for the transmission of broadband digital content. Using unique
proprietary technologies and advanced design methodologies, the
company designs, develops and supplies integrated circuits for a
number of the most significant broadband communications markets.
Bullish sentiment in the Chip sector this past week, thanks to
well-received earnings reports from AMCC and INTC, helped our
call play in Broadcom to move deeper into positive territory.
Two weeks ago, the company announced that it would buy privately
held circuit maker ServerWorks, a deal which analysts applauded.
The completion of that purchase this week has so far turned out
to yield better-than-expected results. First, the acquisition
immediately adds over $300 million in revenues to BRCM's income
statement for the year 2001. Second, ServerWorks' high-profile
customer base, with clients such as Compaq, Dell, EMC and IBM,
could be leveraged, generating sales above and beyond current
estimates. What's more, ServerWorks' Intel-compatible products
gives the company a strategic advantage over its competitors and
in the process, could help smooth relations between BRCM and
INTC. Technically, the chart looks healthy, with the stock
managing to push through its 50-dma (now at $117.51) this week,
riding up support from its 5-dma. Closing right above former
resistance at $130, entries at current levels could be a good
move, provided that sentiment remains positive in the
Philadelphia Semiconductor Index (SOX). Pullbacks to support at
the 5-dma near $125 and our stop price of $120 could be
considered aggressive targets to shoot for. BRCM will be
reporting earnings this Tuesday, January 23rd after the market
close and as such, we will be dropping this play before that time
arrives. If excitement ahead of this announcement drives the
stock price above $135 on volume, this could allow for an entry
on strength before encountering resistance at $140.
BUY CALL FEB-125 RDW-BE OI= 645 at $18.75 SL=13.75
BUY CALL FEB-130 RDW-BF OI=1920 at $16.13 SL=11.50
BUY CALL FEB-135*RDW-BG OI= 428 at $14.00 SL=10.50
BUY CALL MAY-130 RDW-EF OI= 244 at $29.63 SL=21.50
BUY CALL MAY-135 RDW-EG OI= 196 at $27.75 SL=20.00
SELL PUT FEB-120 RDW-ND OI= 524 at $10.00 SL=13.75
(See risks of selling puts in play legend)
http://www.premierinvestor.net/oi/profile.asp?symbol=BRCM
CMCSK - Comcast Corporation $44.94 (+1.25 last week)
Founded in 1963, Comcast has grown from a single system cable
operation into one of the world's leading communication
companies, focused on broadband cable, commerce and content.
Comcast Cable is the country's third largest provider of cable
services, and is expanding its cable operations to deliver
digital services, provide faster Internet service with Comcast @
Home, and develop and deliver innovative programming. QVC is the
premier electronic retailer, providing TV and web-based shopping
in the US, the UK, and Germany.
Once a sector which value investors avoided, Tech stocks have
become a more attractive place for the PE-conscious, as last
year's NASDAQ decline and the detonation of the dotbomb bubble
has given buyers of GARP (Growth At a Reasonable Price) a market
full of opportunities. Leading the charge were the Telecom
providers such as AT&T and WCOM, established names with low
valuations and high potential growth, made higher by an
environment of easing interest rates. This positive sentiment
was also apparent in the cable companies, as shares of CMCSK and
other cable access providers moved back above all of their major
moving averages in late December. Recently, Comcast was able to
raise over $1.5 billion of cash, giving the company some heavy
firepower to compete in a capital expenditure-intensive industry.
As well, fierce competition in the infrastructure manufacturing
space could mean lower costs for build-out projects, making
potential ventures less risky with faster payback periods and
lower break-even points. With moving average support from the 5
and 10-dma (currently sitting at $44.30 and $43.08 respectively),
look for bounces off these two support levels as potential
aggressive entry points. Support can also be found in increments
of $0.50 from $44.50 down to our stop price of $42. If buying
pressure in CMCSK on Monday lifts the stock above Friday's high
of $45.13, this could allow conservative traders to take a
position, provided that peers COX and CHTR are also moving in the
same direction.
BUY CALL FEB-40 CQK-BH OI= 441 at $5.75 SL=3.75
BUY CALL FEB-45*CQK-BI OI=1855 at $2.38 SL=1.25
BUY CALL FEB-50 CQK-BJ OI= 113 at $0.75 SL=0.00
BUY CALL APR-45 CQK-DI OI=2265 at $4.50 SL=2.75
BUY CALL APR-50 CQK-DJ OI= 611 at $2.38 SL=1.25
http://www.premierinvestor.net/oi/profile.asp?ticker=CMCSK
LRCX - Lam Research Corporation $22.75 (+2.06 last week)
Founded in 1980, Lam Research Corporation is a leading supplier
of wafer fabrication equipment and services to the world's
semiconductor industry. In particular, Lam is a technical leader
in etch products and expects similar acceptance for its Chemical
Mechanical Planarization (CMP) product and applications. The
Company also offers next generation solutions for CMP cleaning.
Many of the technical advances that the Company introduces in its
newest products are also available as upgrades to Lam's installed
base of equipment.
Earnings reports were the theme for this past week, as AMCC and
INTC posted results, powering the Chip sector to higher ground.
Even bearish comments from analysts could not take the sector
down. Shares of Lam Research were downgraded by WF Van Kasper on
Monday, from a Buy to a Hold rating but in this market, it's
deeds, not words, that matter, as the stock has continued its
upward advance. While AMCC's bullish outlook going forward
provided the fuel, it was really Intel that provided the spark
for LRCX to move higher, when the Gorilla of the Semiconductors
announced that it would raise capital expenditures for the year
by 12 percent, translating to over $7.5 billion. This was highly
positive news for our call play, as LRCX provides capital
equipment to INTC, suggesting that this move could boost the
company's top and bottom line in the coming quarters. The stock
has been rallying on the backs of the 5 and 10-dma. Bounces off
these two moving averages (now at $21.85 and $20.76) could allow
for aggressive entries but confirm with volume, with addition
support at $22.50, $22 and our stop price of $20. Please note
that we will be dropping coverage of this play before its
scheduled earnings report, set for market close on Tuesday,
January 23rd. While stocks have been moving higher recently
post-earnings, the potential high returns in such a play usually
do not justify the inherently low odds. With its uptrend firmly
intact, if a pre-earnings run ensues, taking LRCX back above $23,
this could allow the more risk averse to take a position,
correlating entries with Merrill Lynch's Semiconductor HOLDR
(SMH).
BUY CALL FEB-20 LMQ-BD OI= 466 at $3.88 SL=2.50
BUY CALL FEB-22.5*LMQ-BQ OI= 480 at $2.50 SL=1.25
BUY CALL FEB-25 LMQ-BE OI=1009 at $1.44 SL=0.75
BUY CALL MAR-22.5 LMQ-CQ OI= 880 at $3.50 SL=1.75
BUY CALL MAR-25 LMQ-CE OI=3654 at $2.44 SL=1.25
http://www.premierinvestor.net/oi/profile.asp?ticker=LRCX
MER - Merrill Lynch & Co., Inc. $73.88 (-0.38 last week)
Merrill Lynch & Co., Inc. has a strong client focus with a goal
to deliver superior returns to their shareholders. They are
determined to create value for their clients by providing wisdom
and high quality services that meet their needs. Merrill Lynch
has a track record of delivering strong returns to their
shareholders, and has aligned employee and shareholder interests
through a high level of employee stock ownership. They are
leveraging the global investments they have made to sustain
profitable growth.
Warren Buffett once compared interest rates to the force of
gravity, commenting that the higher the rate, the greater the
downward pull. Because of the need for investors to overcome the
risk-free rate of return, a rise in interest means that more risk
is taken on to earn a lower return. This principle is even more
important when considering Financial stocks, since interest rates
are also the cost of doing business. With the Fed providing an
easing environment, this has taken a weight off the backs of
equities across the board, with the Financial sector benefiting
directly from lowered lending rates, increasing the demand for
business. Making new intra-day and closing highs earlier in the
week, shares of Merrill Lynch have since settled in a
consolidation pattern. It appears the stock may be gathering up
strength before making its next big move. The stock has been
trading in a narrow range the past two sessions, with support
from the 10-dma at $72.90 and resistance from the 5-dma at
$73.97. The higher lows combined with formidable resistance at
the $76 level reveals that MER is in the midst of forming a
bullish ascending triangle pattern. A bounce off moving average
support as well as horizontal support at $73, $71.50 and our stop
price of $70 could allow higher risk players to enter this play,
but note that we will be closing out this play before its
earnings report on Tuesday, January 23rd. If buyers jump in
before that time, taking the stock price back above the 5-dma
with conviction, this could afford aggressive traders one more
chance to make a play, but make sure that GS and LEH confirm
positive direction.
BUY CALL FEB-70 MER-BN OI=2239 at $7.00 SL=5.00
BUY CALL FEB-75*JMR-BO OI=2927 at $3.88 SL=2.50
BUY CALL FEB-80 JMR-BP OI=3212 at $1.94 SL=1.00
BUY CALL APR-75 JMR-DO OI=5724 at $7.25 SL=5.00
BUY CALL APR-80 JMR-DP OI=8077 at $5.00 SL=3.00
http://www.premierinvestor.net/oi/profile.asp?ticker=MER
SLR - Solectron Corporation $41.95 (+3.33 last week)
Founded in 1977, Solectron Corporation is the world's largest
electronics manufacturing services company offering a full range
of integrated supply-chain solutions for the world's leading
electronics original equipment manufacturers. Solectron's
integrated technology solutions, materials, manufacturing and
operations, and global services offer customers competitive
outsourcing advantages, such as access to advanced manufacturing
technologies, shortened product time-to-market, reduced total
cost of ownership and more effective asset utilization.
Positive sentiment in the Tech sector helped shares of Solectron
to power ahead this week, with the stock moving ever higher,
backed by support from the 5-dma. This was certainly a week of
breakthroughs for the company, first with news that its
subsidiary SMART Modular Technologies received approval from
First International Computer for its 184-pin DIMMs from, which
will be used in their new AMD-based motherboards. Technically,
SLR cleared formidable resistance from the 50 and 200-dma,
converged at the $40 level, putting the stock back above all its
major moving averages for the first time since last October. SLR
ended the week on a high note, adding another $1.06 or 2.59
percent to its gains on above average volume, closing at its high
for the day. At this point, a break above the $42 level on
volume could allow conservative traders to initiate a play, but
make sure that competitors such as CLS, FLEX and JBL are also
moving higher. For higher risk players, entries on dips may be
found on bounces off support at $41, $40, the 5-dma at $39.54 and
the 10-dma at $37.67. There should also be support at our stop
price of $37 but make sure SLR continues to close above this
level to maintain upward momentum.
BUY CALL FEB-35 SLR-BG OI= 347 at $7.90 SL=5.75
BUY CALL FEB-40*SLR-BH OI=1059 at $4.10 SL=2.50
BUY CALL FEB-45 SLR-BI OI=1158 at $1.75 SL=1.25
BUY CALL APR-40 SLR-DH OI=1416 at $6.70 SL=4.75
BUY CALL APR-45 SLR-DI OI=1181 at $4.10 SL=2.50
http://www.premierinvestor.net/oi/profile.asp?ticker=SLR
UBS - UBS Warburg $173.75 (+3.93 last week)
UBS Warburg is a business group of UBS AG, one of the largest
financial services firms in the world with 78,000 employees in
more than 40 countries. In the United States, UBS Warburg's
securities activities are conducted through UBS Warburg LLC and
PaineWebber Incorporated, U.S.-registered broker-dealers. The
firm is a leader in equities, corporate finance, M&A advisory and
financing, financial structuring, fixed income issuance and
trading, foreign exchange, derivatives and risk management. UBS
Warburg also offers a full range of innovative wealth management
services through PaineWebber, and provides private equity
financing through UBS Capital.
This was a satisfying week for reasons both fundamental and
technical, in trading shares of UBS. Early in the week, the
company announced that it along with Morgan Stanley Dean Witter
had won an agreement in Norway, which would allow them to handle
the IPO of government-owned energy company Statoil. This was a
highly prized offering, with the deal worth between $2.8 to $4.7
billion US. Considering that UBS was chosen over formidable
competitors such as Goldman Sachs, this was a vote of confidence
indeed. As well, economic reports this week pointed to the
increased likelihood of lowered interest rates going forward,
which is good news for Financial stocks across the board. Ever
since starting this play, we were concerned that UBS would need
to fill a gap that it had left, between $165 to $170. Trading
action this past week led to the fulfillment of that technical
concern, leaving the stock free to move higher. At this point
support can be found at the $170-171 area, where the 5 and 10-dma
are currently converged. Horizontal support can also be found at
$173, $170, and our stop price of $165. If UBS closes below the
key support level of $165, this could be a reversal of positive
momentum so keep that price in mind when making a play. If the
Financial sector rallies ahead of the upcoming Fed meeting, then
a break above the $175 level could allow conservative players to
participate, but only if buying volume is strong and rivals BSC,
LEH, MWD confirm upward direction.
BUY CALL FEB-170 UBS-BN OI= 7 at $ 8.30 SL=6.00
BUY CALL FEB-175*UBS-BO OI=67 at $ 5.60 SL=4.00
BUY CALL FEB-180 UBS-BO OI=20 at $ 3.50 SL=1.75
BUY CALL MAR-175 UBS-CN OI= 0 at $10.90 SL=8.25 Wait for OI!!
BUY CALL MAR-180 UBS-CO OI= 4 at $ 6.00 SL=4.00
http://www.premierinvestor.net/oi/profile.asp?ticker=UBS
WCOM - WorldCom, Inc. $22.00 (+0.25 last week)
WorldCom is a new kind of communications company. WorldCom
combines financial strength and a depth of resources to pursue
the industry's best growth opportunities with an advanced global
network built for the data-intensive era of communications.
WorldCom's strategy is to capitalize on the industry's fastest
growing segments. It has a unique set of attributes to pursue
this strategy, including approximately 77,000 employees based in
more than 65 countries, comprising an expert workforce of
Information Age architects and sales and service specialists.
The recent sector rotation from the old economy into new economy
stocks has helped Telecom provider issues such as AT&T and WCOM
to break long-term downtrend lines. Investors who considered
Tech stocks too richly valued in the past have been cashing in
gains from the Drug, Healthcare and other defensive sectors to
chase the double-digit growth potential of the NASDAQ now that
earnings multiples have undergone a steep compression, providing
attractive share prices. With many companies pre-announcing
earnings, it appears that any bad news has already been factored
into the stock price. With that in mind, traders have been
bidding up WCOM on an improving fundamental picture. With the
Fed lowering the cost of borrowing, this greatly reduces interest
expenses on the income statement, benefiting the bottom line.
What's more, technological advances in networking and stiff
competition amongst the manufacturers lowers the cost of
expansion, meaning that less capital is necessary to produce a
greater return. Last week we mentioned that the stock looked
poised to move as high as $23 in the near term and that's exactly
what happened. With WCOM now flirting with its 100-dma,
currently sitting at $22.10, look for a break above its 5-dma
(just above at $22.16) on strong up volume as an entry on
strength for a conservative play. For a higher risk play,
support can be found in increments of $0.50 from $22 down to our
stop price of $20, entering only when buying volume returns and
Merrill Lynch's Telecom HOLDR (TTH) confirms the health of the
sector.
BUY CALL FEB-20 LDQ-BD OI=10116 at $3.25 SL=1.75
BUY CALL FEB-22.5*LDQ-BX OI=17356 at $1.69 SL=0.75
BUY CALL FEB-25 LDQ-BE OI=14365 at $0.88 SL=1.00
BUY CALL MAR-22.5 LDQ-CX OI=26237 at $2.38 SL=1.25
BUY CALL MAR-25 LDQ-CE OI=14879 at $1.44 SL=0.75
http://www.premierinvestor.net/oi/profile.asp?ticker=WCOM
PLAB - Photronics Inc $33.63 (-0.38 last week)
Photronics manufactures photomasks, which are high precision
quartz plates that contain microscopic images of electronic
circuits. Photomasks are a key element in the construction of
semiconductors. The Company's products are used to transfer
circuit patterns onto semiconductor wafers during the
fabrication of integrated circuits. US chip makers account for
nearly 85% of sales; although Photronics operates manufacturing
facilities in Asia, Europe, and North America. They recently
acquired rival Align-Rite in a move to become the world's
largest independent maker of photomasks.
Another resurgence of strength in the Semiconductor Index
(SOX.X), now above the 720 mark, re-ignited shares of PLAB. A
strong wedge formation currently indicates PLAB is on the verge
of a big breakout through the $35 resistance. The recurring
tests at the overhead resistance in the course of the last three
sessions, further bolstered by a developing pattern of higher-
lows, substantiates the bullish disposition. The superb volume,
of at least twice the ADV, also continues to supply evidence
that PLAB is no doubt on investors' buy list. Near-term support
is firming at $32 and the corresponding 5-dma line. This level,
which is just above our $31 exit point, offers reasonable entry
points on intraday pullbacks for the discriminating trader.
Traders who prefer to take positions on momentum breakouts
should consider buying into strength as PLAB moves through $35
and $36. The only opposition above those levels of resistance
is found at $46.50, the stock's 52-week high, which provides
plenty of opportunity for PLAB to make profitable gains in a
cooperating market environment. Continue to look for the SOX.X
and the NASDAQ to maintain its positive bias before beginning
new plays.
BUY CALL FEB-25 PQF-BE OI=457 at $9.38 SL=6.25
BUY CALL FEB-30 PQF-BF OI=877 at $5.25 SL=3.25
BUY CALL FEB-35*PQF-BG OI=634 at $2.50 SL=1.25
BUY CALL MAR-30 PQF-CF OI=312 at $6.50 SL=4.25
BUY CALL MAR-35 PQF-CG OI=302 at $3.88 SL=2.25
http://www.premierinvestor.net/oi/profile.asp?ticker=PLAB
NETE - NeteGrity Inc $45.13 (+2.13 last week)
Netegrity is a provider of software and services that manage and
control user access to Web-based e-commerce applications. The
company's SiteMinder product is a directory-enabled secure user
management system, which is used to build and manage what is
commonly known as a portal. Netegrity also offers professional
services that support its software product offerings.
NETE is a pure and simple earnings' run enhanced by the strength
within the software sector. However, the relatively tight time
frame certainly poses some additional risk. Netegrity is
reporting earnings this Thursday, January 25th (after the
market), so plan on getting in and out of your call positions
prior to the announcement. We're looking for profitable
opportunities to arise as NETE continues to recover at a rapid
pace. Consistent buying recently took NETE off its lows of $30
and drove it through the shorter-term 5 & 10 DMAs like a hot
knife slice through butter. The steadfast advances have since
propped NETE onto a higher level of support at $43 and $45 as we
approach the company's earnings date. The ascending support at
$40, $43 and $45 currently offer a selection of entry points on
dips, but of course this depends on your personal risk
portfolio. The conservative types may only want to buy into a
rally above the immediate resistance at $47 and $48. And if
time permits, might instead look for a momentum entry as NETE
breaks out above the formidable 200-dma ($50.44). For those
traders choosing to take lower entries, you might want to lock
in profits as NETE approaches the above-mentioned levels of
anticipated resistance. While it's possible NETE could tack on
another 30 to 35% over the short-term, we should always trade
in a disciplined manner. Keep stops above our exit point of $42
for protection against an unforeseen reversal. Remember, time
is of the essence. It's also a good idea to watch other
software stocks that are moving in the market such as BEA
Systems (BEAS), Microsoft (MSFT), Micromuse (MUSE), and Veritas
(VRTS) to help define the sector's overall sentiment. In the
news this week, Gerard Klauer Mattison came forward with new Buy
coverage on NETE and issued a $60 price target.
BUY CALL FEB-40 UPN-BH OI= 16 at $9.00 SL=6.25
BUY CALL FEB-45*UPN-BI OI=3002 at $6.38 SL=4.25
BUY CALL FEB-50 UPN-BJ OI= 130 at $4.00 SL=2.50
BUY CALL MAR-45 UPN-CI OI= 513 at $9.38 SL=6.50
BUY CALL MAR-50 UPN-CJ OI= 8 at $7.38 SL=5.25
http://www.premierinvestor.net/oi/profile.asp?ticker=NETE
ARBA - Ariba Inc $38.25 (+3.06 last week)
Ariba is a provider of Internet-based B2B e-commerce network
solutions for operating resources. Their Web-based procurement
software helps manufacturers, retailers, and distributors to
track and manage supply purchases over the Internet. Blue chip
clients include Dupont, Federal Express, and Hewlett-Packard.
Our play objective is for ARBA to make a significant recovery
off its recent lows of $30 and return to higher trading levels
above the $50 mark. By contrast to the company's recent
earnings' adversity revolving around future growth concerns, we
believe there's little downside to follow and lots of upside
potential from which to profit. Take a look at a recent chart
and you can visually confirm ARBA is edging upwards and
pressuring the topside resistance at $38 and $39. Of course,
we'll exit the play if ARBA demonstrates weakness and closes
below the $32 mark. You might consider taking entries on strong
bounces off near-term support at the 5-dma ($36.54) or if you're
more cautious, at the trailing 10-dma ($37.43) in an advancing
marketplace. Truer to the technicals, some traders might want
to see ARBA retrace January 11th climb above the $45 before
taking positions; although a convincing rally through the $40
level provides a discerning level of confirmation, too. Pay
attention to other computer service stocks like Commerce One
(CMRC), who recently surged on news of a higher revenue
forecast, Exodus (EXDS), WebMethods (WEBM) or Akamai
Technologies (AKAM) to get a feel of how the sector is
moving in response to the ever-changing marketplace.
BUY CALL FEB-30 IRU-BF OI= 356 at $10.50 SL=7.50
BUY CALL FEB-35 IRU-BG OI=1623 at $ 7.38 SL=5.00
BUY CALL FEB-40*IRU-BH OI=2911 at $ 4.25 SL=2.50
BUY CALL FEB-45 IRU-BI OI=3483 at $ 2.88 SL=1.50
http://www.premierinvestor.net/oi/profile.asp?ticker=ARBA
SNPS - Synopsys Inc $53.19 (+1.63 last week)
Synopsys supplies electronic design automation solutions to the
global electronics market. The Company provides design
technologies to manufactures of advanced integrated circuits,
electronic systems, and systems on a chip. Synopsys also
provides consulting services and support to its customers to
streamline the overall design process and accelerate time to
market.
If you like to play stocks which exhibit the much talked about
"wedge formations", than SNPS might be the play for you. In
early December, SNPS began building a strong wedge formation
that, at the time we first initiated coverage, was capped by the
$50 level. Since then we've seen bullish technical developments
emerge. SNPS is currently using the former resistance level
($50) as an intraday launching pad. The relentless upswings to
$52 finally produced another breakout during Friday's session.
SNPS saw a $3.25, or 6.5% move to the upside on 2.6 times the
ADV. The robust trading and straight-up climb through the $52
opposition indicates buyers could very well take SNPS upwards of
its 52-week high ($56.44) very soon. If you have open positions
or are planning a lower entry on pullbacks to the 5 & 10 DMAs at
$51.01 and $50.19, respectively, then consider taking profits
before SNPS challenges the upper resistance levels. A smart
trader will lock in gains first, re-assess, and then jump back
into the play if conditions appear suitable. Of course, there's
always the possibility of intraday volatility spiking the stock
through the immediate opposition, but this is a different type
of scenario and should be played accordingly. The company is
now confirmed to report earnings on Wednesday, February 21st
(after the market); therefore, it's possible the current
dynamism could generate another sweeping wave to carry us
forward into the announcement. The Semiconductor Index (SOX.X),
which is made of a basket of semiconductor stocks, is a good
gauge to watch while planning your entry/exit strategies.
Our protective stop remains at $49, notwithstanding the
future cycles of the sector.
BUY CALL FEB-45 YPQ-BI OI= 77 at $9.38 SL=6.50
BUY CALL FEB-50 YPQ-BJ OI=242 at $5.75 SL=3.75
BUY CALL FEB-55*YPQ-BK OI=664 at $3.00 SL=1.50
BUY CALL MAR-50 YPQ-CJ OI=324 at $7.13 SL=5.00
BUY CALL MAR-55 YPQ-CK OI=163 at $4.50 SL=2.75
http://www.premierinvestor.net/oi/profile.asp?ticker=SNPS
NUFO - New Focus $54.63 (+20.19 last week)
Taking advantage of Telecom providers' new focus on fiber optic
networks, NUFO makes fiber amplifiers, wavelength management
equipment, and optoelectronics that boost the capacity and speed
of networks over extended distance. Additionally, the company
makes laser modules and photonics tools used in the manufacture
and testing of fiber optic equipment. With over 50 end
customers, NUFO sells its equipment to the likes of Agilent,
Alcatel, Corning, Corvis, JDS Uniphase, Lucent and Nortel.
The bulls are back in town, and they have a taste for Optical
stocks. After closing out the year 2000 on a sad note, select
Optical and Networking stocks have kicked off the new year
right, and NUFO is definitely in the first string. Taking the
first two weeks to consolidate above the $30 level, our new play
went on a tear last week, gaining a whopping 58% to close out
the holiday-shortened week nearly $5 above the upper Bollinger
band. Volume was heavy as well, more than double the ADV for
the past 3 days, as the stochastics finished their journey into
the overbought zone. We still have over a week until NUFO
announces earnings (they are scheduled for January 30th, after
the close), so what prompted the move? The whole Networking
sector got a big boost from the blowout earnings posted Tuesday
night by JNPR and AMCC, and the positive sentiment continued
after NT announced their numbers Thursday night and made bullish
comments about the future. Needless to say, with such a strong
move, it seems likely that we will see some profit taking in the
near future, and we want to be ready to pounce on new positions
when we get the pullback. Given the meteoric rise, our stop is
way down at $42, the first level of support with more than a
day's worth of trading history. Intraday support can be found
at $45, $47, and $49, and a bounce at any of these levels looks
good for new entries. Just make sure that buying volume is
coming back, and the Networking index (NWX.X) is continuing in
the positive direction.
BUY CALL FEB-50 DBE-BJ OI=591 at $10.25 SL= 7.25
BUY CALL FEB-55*DUO-BK OI=100 at $ 7.75 SL= 5.50
BUY CALL FEB-60 DUO-BL OI= 32 at $ 5.88 SL= 3.75
BUY CALL APR-55 DUO-DK OI= 38 at $13.75 SL=10.25
BUY CALL APR-60 DUO-DL OI= 40 at $11.75 SL= 8.75
BUY CALL APR-65 DUO-DM OI= 12 at $10.13 SL= 7.00
SELL PUT FEB-45 DBE-NI OI= 12 at $ 3.25 SL=5.25
(See risks of selling puts in play legend)
http://www.premierinvestor.net/oi/profile.asp?ticker=NUFO
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?
Learn how to invest in the OEX, QQQ, and SPX. Get intraday
market updates, plays, education and daily commentaries by
those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1414
************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter Sunday 01-21-2001
Sunday 4 of 5
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/012101_4.asp
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1440
**************************************************************
*************
NEW PUT PLAYS
*************
TEVA - Teva Pharmaceutical Industries $53.25 (-8.37 last week)
Teva Pharmaceuticals is headquartered in Israel, and is one of
the top 50 pharmaceutical companies, and one of the largest
generic pharmaceutical companies in the world. Over 85% of
Teva's sales are outside of Israel, mainly in North America
and Europe. The company develops, manufactures and markets
generic and branded human pharmaceuticals, and active
pharmaceutical agents.
Teva experienced strong gains last year, with the rest of the
generic pharmaceutical company stocks. However, a changing
investment climate, as well as unfavorable news released
recently, seems to have changed the trend. As the technology
stocks gain investors favor again, the entire spectrum of
health care stocks has suffered. In particular, generic drug
makers operate in a difficult environment. Unlike a company
which receives a 14 or 15 year patent for its own discovery,
the generics must fight each other for first approval of
generic drug versions, and have only a limited 6 month period
of exclusivity, after which the market is open to all. On
Thursday, Watson Pharmaceuticals, another generic drug
company, lost a significant court case against Bristol
Meyers Squibb. A US court upheld patent protection for Bristol
Meyer's anxiety drug BuSpar, which means that Bristol Meyers
will have an additional 30 months of exclusive rights to this
drug. This was perceived by investors to have possibly been
a precedent-setting case, and very bad news for generic drug
stocks. While the pharmaceutical and medical products stocks
started a down trend after the Fed's rate cut, Teva's chart
shows exceptional weakness, which started with a spiky head
and shoulders pattern in December. After forming a pattern of
higher lows, and a roll over at $60 this week, Friday's move
dropped Teva below the 200 dma of $58.14 for the first time in
a year on six times the average daily volume. Teva would need
excellent news, as well as serious sector rotation in order
to re establish technical strength. Traders can take positions
at current levels, or at a break below support at $52. Keep an
eye on the other generic pharmaceutical stocks like WPI, BRL,
BVF, and MYL for weakness, and set stops at $57.
BUY PUT FEB-60 TVQ-NL OI=19 at $8.63 SL=6.00
BUY PUT FEB-55*TVQ-NK OI=20 at $5.13 SL=3.00
http://www.premierinvestor.net/oi/profile.asp?ticker=TEVA
AFL - Aflac Incorporated $56.69 (-5.37 last week)
Aflac Incorporated is an international holding company. A
Fortune 500 company, Aflac insures more than 40 million people
worldwide. It is the leading underwriter of supplemental
insurance marketed at the worksite in the United States,
offering policies to employees at 160,000 payroll accounts.
The company is also the largest foreign insurer in Japan.
The insurance company stocks rallied strongly last year,
as a defensive alternative to technology, and Aflac experienced
over a 100% rise in its stock price from a low of $33 last March
to over $74 last October. However, Aflac's duck is now quacking
in a different market environment. While the Federal Reserve's
rate cuts may benefit other financial stocks like banks and
brokerage firms, life insurance underwriters tend to suffer
with lower interest rates. This is due to the fact that the
yield they earn on their investments in primarily fixed income
products will decline, while their liabilities will usually
continue to grow at the same rate. After forming a double
top pattern at $72 in December, Aflac fell below its 50 dma
of $68.53 on January 3, the day the Fed cut interest rates.
Aflac's earnings may be adversely affected by weakness in the
yen, due to the company's heavy exposure in Japan. In addition,
Aflac has suffered the indignity of multiple downgrades in the
last few months, as Banc of America and Wasserstein Perella
both dropped AFL a notch on the recommendation hierarchy.
Aflac rolled over at $62 this week, and fell below the 200 dma
of $59.53 for the first time in a year on three times the
average daily volume. The stock now appears poised to roll
over at $57, or the next resistance level at $58.50, both of
which could be good entry points. The next major support
level is $55, and a break below this point on heavy volume
could also be an entry point. Aflac reports earnings on
January 29, but an earnings rally is likely to be weak. Watch
the other life insurance stocks like AGC and AEG, and keep
stops set at $60.
BUY PUT FEB-60 AFL-NL OI=1166 at $5.38 SL=3.50
BUY PUT FEB-55*AFL-NK OI= 123 at $2.63 SL=1.50
http://www.premierinvestor.net/oi/profile.asp?ticker=AFL
BA - Boeing $55.69 (-4.94 last week)
One of the world's major aerospace firms, BA operates in three
principal segments: commercial airplanes, military aircraft and
missiles, and space and communications. Commercial airplanes
operations involves the development, production and marketing
of commercial jet aircraft, principally to the commercial
airline industry. The Military Aircraft and Missiles division
is involved in the research, development, production,
modification and support of military aircraft, including
transport and attack aircraft. The Space and Communications
segment is involved in the research, development, production,
modification and support of space systems, rocket engines and
battle management systems.
A classic case of selling the news, shares of BA began to come
off of their highs near $70 just about the time investors became
convinced that George Bush would be the next president of the
United States. Republican administrations are typically more
friendly to defense-oriented companies, and ever since the
middle of December, shares of the aircraft manufacturer have
been in a downtrend. The stock had been in a solid rally since
the summer, and it was high time that investors took some money
off the table anyways. But with anticipation giving way to
assurance, investors took their profits and moved on to the next
great thing. The bulls tried to break out of the downtrend as
earnings approached, but when the results were released on
Wednesday, the bears sold that news as well. Apparently they
weren't too thrilled by earnings that beat estimates by a dime,
when net revenues declined 3% on a year-over-year basis. The
disappointment dropped the stock through the $58 support level,
and then on Friday, $56 support fell by the wayside as well.
There is mild support between $52-54 with the 200-dma at $52,
and then it looks like an easy trip to $50. Aggressive traders
will want to wait for a bounce out of the oversold zone to
provide a better entry point. A failed rally near the $58 level
(also the location of our stop) looks like just the ticket, so
long as the selling volume remains robust on the rollover.
More conservative entries can be had on a decline below Friday's
low of $55.50, but beware of profit taking. BA is riding the
lower Bollinger band down, and with the Stochastics now in
oversold again, a profit taking bounce could come at any time.
BUY PUT FEB-60 BA-NL OI=3727 at $5.63 SL=3.50
BUY PUT FEB-55*BA-NK OI=2415 at $2.69 SL=1.50
BUY PUT FEB-50 BA-NJ OI=1725 at $1.19 SL=0.50
http://www.premierinvestor.net/oi/profile.asp?ticker=BA
*****************
CURRENT PUT PLAYS
*****************
WLP - Wellpoint Health Networks Inc $88.88 (-10.00 last week)
Wellpoint Health Networks Inc serves the health care needs of
more than 7.7 million medical and more than 38 million specialty
members nationally through Blue Cross of California and UNICARE.
Wellpoint offers a broad spectrum of quality network-based
health products including open access PPOs , HMOs and specialty
products. Specialty products include pharmacy benefit
management, dental, utilization management, long term care
insurance, and Medicare supplements.
Wellpoint has seen healthier days. The meteoric rise in the
S & P Managed care index last year was primarily attributed to
investor’s fear of technology, which seems to have abated since
the Federal Reserve’s rate cut, and good earnings which have been
reported from many technology companies. At this point, the HMO
stocks are starting to look as overvalued as the Internet stocks
were at their peak. Wellpoint doubled from $60 to $120 last year,
while its earnings grew at approximately 16%. Now that the
valuation catch-up time has occurred, Wellpoint is well
positioned for put players. WLP gapped down almost two points
Friday morning, and quickly proceeded to drop below the critical
support level of $90. From there, the stock rolled over $88.75
twice, and attempted to rally at the close. However, it closed
below the morning’s gap, which is a bearish indicator. Volume
was double the daily average, which indicates that heavy
selling was occurring. Next week, put players can look for a
roll over from $88.75, or $90 as entry levels. WLP is scheduled
to report earnings February 13th after the close, however, in
this market environment, any attempted earnings run is likely to
be weak. Aggressive traders could consider entering positions
on a roll over from the 200 dma at $91.96, however, check for
weakness in the HMO sector before buying puts. Keep an eye
on OXHP, AET, CI and UNH for an indication of weakness. Set
stops at $97.
BUY PUT FEB-100*WLP-NT OI=6 at $13.25 SL=10.00
BUY PUT FEB- 95 WLP-NS OI=0 at $ 9.50 SL= 7.25 Wait for OI!
http://www.premierinvestor.net/oi/profile.asp?ticker=WLP
DGX - Quest Diagnostics $99.19 (-5.13 last week)
Based in Teterboro, New Jersey, Quest Diagnostics is the
nation's leading provider of diagnostic testing, information
and services, with annualized revenues of over $3 billion.
Quest Diagnostic's gene based testing focuses on infectious
disease, oncology, and hereditary conditions, and helps
physicians target individual treatment regimes and monitor
resistance to therapies.
Quest’s rally on Friday was technically weak, and a potential
bull trap, as volume was half seen on the down days. A chart
since January 5th shows an unmistakable strong down trend,
with DGX poised right at the top of the downward channel. The
catalyst for Friday's movement may have been an upgrade by
Prudential to a Strong Buy. However, very few stocks can buck
the trend of a falling sector, and right now, the medical
products and services sector is experiencing heavy selling, as
investors rotate back into technology shares. Quest has fallen
nearly 40% from $140 in the last month, and an oversold rally
was due. The daily chart shows a pattern indicative of a stock
which is struggling to rally, but could not show any true
strength in an environment of sector weakness. The most likely
move from here would be a rollover at the 5 dma of $99.75, which
could be a possible entry point. Quest is scheduled to report
earnings on January 29th, and a possible attempted rally into
earnings may occur. That said put players should be careful to
pay close attention to the medical products and services sector
for weakness by watching stocks like LH, HRC, and BAX, as well
as HMO stocks like WLP and AET. A break below the 200 dma of
$96.88 could lead DGX to $90, and conservative traders should
wait for a fall on heavy volume. Keep stops set at $104.
BUY PUT FEB-100 DGX-NT OI=100 at $11.00 SL=8.25
BUY PUT FEB- 95*DGX-NS OI= 32 at $ 8.88 SL=6.25
http://www.premierinvestor.net/oi/profile.asp?ticker=DGX
CB - Chubb Corporation $68.69 (-0.37 last week)
Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.
So far this New Year, shares of Chubb have been quietly bleeding,
as money flows out of the old economy into the more sexy
four-letter NASDAQ issues. Sector rotation appears to be the
name of the game, punctuated by a lack of company-specific news,
with the result being that the stock has fallen under the swoon
of negative sector sympathy and its own weak technicals. CB
started the week by opening below its last line of moving average
defense, the 200-dma (now sitting at $73.60) and with that,
selling volume picked up. For technical analysts, this has been
a simple stock to play, as CB has failed to close above its 5-dma
so far this month. Recent price action of lower lows appears to
have culminated in a bearish descending triangle formation, with
support near the $68 level. Having already broken below its
long-term uptrend line, a support level that had been in place
since March of 2000, continued bullishness in Tech stocks could
lead to more selling, as shareholders take their money out of the
NYSE poker table to play the NASDAQ roulette wheel. A break
below its recent low of $67.75 on strong selling volume could
allow conservative players to enter this play. For higher risk
players looking to enter on a failed rally, resistance overhead
can be found from the 5-dma at $69.92, $70, the 10-dma at $72.33
and our stop price of $73. In both cases, make sure that sector
sentiment continues to be on your side by watching competitors
such as CI and ALL.
BUY PUT FEB-70 CB-NN OI=76 at $4.25 SL=2.50
BUY PUT FEB-65*CB-NM OI= 2 at $1.88 SL=1.00
http://www.premierinvestor.net/oi/profile.asp?ticker=CB
MMC - Marsh & McLennan Co $99.31 (-0.94 last week)
Marsh & McLennan Companies is the world's largest insurance
brokerage company. The professional services firm provides its
clients with analysis, advice and transactional capabilities in
the fields of risk and insurance services, investment
management, and consulting. It operates worldwide through its
subsidiaries and affiliates, which include Marsh, a risk and
insurance services firm, Putnam Investments, one of the US's
biggest money managers, and Mercer Consulting Group, a global
provider of human resources and management consulting services.
A wonderful dream that doesn't seem to want to end - not that
we're complaining! The elemental factors of this put play are
rather simple and straightforward. For the benefit of our new
readers, please let me reiterate. The general rotation out of
defensive-type stocks as traders selectively take positions in
the technology sector certainly promotes a negative bias for the
short-term. However, it is the accelerating downtrend of the
whole insurance sector that is directly effecting MMC's share
price. Take a look at a two-month chart of the S&P's Insurance
Index (IUX.X) for visual confirmation. Last week, the index's
attempt to clear the overhead opposition at 730 failed and
correspondingly, so did MMC's short-lived uprisings. The bulls
failed to successfully take the share price through $104 and
$105, despite robust volume levels; although on the downside
$100 initially served as a firm bottom. Then we saw IUX.X
breakdown under its support of 720 and find a perch on the 200-
dma (706.69) line. MMC followed suit and slid under its
historical support at the century mark. A dive to $97 coupled
with a weak close bodes well going forward. High-volume
rollovers as MMC approaches the $100 mark and 5-dma ($100.96)
would provide aggressive entries into further declines, but keep
stops tight. A reversal at this attractive price level is
always a concern. We've kept our protective stop a bit high at
$104 to allow room for MMC to operate, but our decision isn't an
invitation to take unnecessary risks. The company's earnings
are also right around the corner. So far, there isn't a
confirmed date; however, it's expected Marsh & McLennan will
report around January 29th.
BUY PUT FEB-110 MMC-NB OI=110 at $12.25 SL=9.00
BUY PUT FEB-105 MMC-NA OI= 40 at $ 8.50 SL=6.00
BUY PUT FEB-100*MMC-NT OI=150 at $ 5.50 SL=3.50
http://www.premierinvestor.net/oi/profile.asp?ticker=MMC
LH - Laboratory Corp. of America $121.19 (-13.75 last week)
Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics. LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers. With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.
Sector rotation continues and LH, a favorite of the bulls last
month, is fast becoming popular with the bears. It all began
with heavy profit taking as soon as the new year began, but this
is quickly turning into a sustained downtrend. The bounce at
$132 and subsequent rollover created a lower high, allowing us
to create a descending trendline on the chart. This trendline
is capping any attempted rallies, and is now sitting at $129.
The sharp drop that began 3 weeks ago has stretched the
Bollinger band, and our play can drop to support at $113 before
challenging the lower band again. Heavy selling volume is
continuing to drive this move as the Medical stocks suffer at
the hands of the bears. Due to the extreme nature of the
current selloff (LH is down 31% so far this year), a
short-covering bounce could occur at any time, but we would
expect it to be limited by the descending trendline.
Accordingly, we are moving our stop down to $132. Another down
day will likely have us adjusting our stop down further to
insure we lock in our profits. Conservative investors will
want to wait for a further decline below $120 before taking a
position, watching for confirmation in the form of selling in
DGX, LH's primary competitor. An oversold bounce looks like it
will run out of steam near our descending trendline, also the
site of the 5-dma ($129.38), and we would target any rollover
in the $128-130 area for new positions. While LH doesn't report
earnings until February 19th, DGX reports on January 29th. Due
to the similarity in the two companies' business, a surprise
(either up or down) could have a pronounced effect on shares of
LH as well.
BUY PUT FEB-125 LH-NE OI= 65 at $14.13 SL=10.50
BUY PUT FEB-120*LH-ND OI=239 at $11.50 SL= 8.75
BUY PUT FEB-115 LH-NC OI= 58 at $ 8.75 SL= 6.00
http://www.premierinvestor.net/oi/profile.asp?ticker=LH
PMI - PMI Group $48.94 (-1.44 last week)
PMI Group is a holding company that conducts its residential
mortgage insurance business through its subsidiaries. PMI
provides primary insurance coverage, insuring mortgage lenders
and mortgage loan investors against borrower default on
individual first mortgage loans. At the end of 1997, PMI
began offering a pool insurance product, primarily to Fannie
Mae and Freddie Mac, as a part of the company's value-added
strategy. This product is also sold to state housing finance
authorities, and is generally used as an additional credit
enhancement for certain secondary market mortgage transactions
to protect against loss on a defaulted mortgage loan which
exceed the claim payment under the primary coverage.
We've been amply rewarded in our PMI play as the stock has
continued to decline, all the way to major support near $49.
Insurance stocks as a whole have been a favorite target of the
bears so far this year, and PMI is no exception, already giving
up more than 30% from its late-December highs. As much fun as
this play has been, it is looking like it is almost time to wrap
it up and move on. Selling pressure seems to be diminishing and
the current support level may be the one that stops the bears
cold. But more important is the company's earnings release,
currently scheduled for Wednesday, January 24th before the
market opens. This means we need to be out of any open plays by
the closing bell on Tuesday to avoid the uncertainty and
volatility often associated with earnings. In the meantime
though, we can attempt to wring some more profit out of the
play. Our stop is still resting at $53, but if you have profits
in the play, you may want to tighten this up a little just to
insure you don't get caught unawares by a short-term recovery,
and give your profits back to Mr. Market. While we will need to
be agile due to the short timeframe, we can consider new entries
on a failed rally to the $50 or $52 support levels. Continuing
weakness is also a potential entry trigger - just wait for
strong volume to push the stock below the $48 intraday support
level and then spring into action. Of course, we need to
monitor the action on the Insurance index (IUX.X) and confirm
it is still in descent mode before adding new positions.
BUY PUT FEB-50*PMI-NJ OI=50 at $3.88 SL=2.50
BUY PUT FEB-45 PMI-NI OI= 0 at $1.63 SL=0.75 Wait for OI!
http://www.premierinvestor.net/oi/profile.asp?ticker=PMI
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?
Learn how to invest in the OEX, QQQ, and SPX. Get intraday
market updates, plays, education and daily commentaries by
those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1415
************************************************************
*****
LEAPS
*****
If It Looks Like A Rally, And Walks Like A Rally...
By Mark Phillips
Contact Support
It must be a rally, right? That much is not in dispute. The
real question is how long it is going to last. Buying interest
on the NASDAQ has been strong throughout the past week, and
sellers have not shown up in sufficient numbers to spoil the
party. Virtually everything on our play list is up strongly in
the past week, with notable performances from the likes of AOL
(thanks to positive reception of the completed merger with Time
Warner), NT, A and DELL.
Earnings appear to be coming in better than expected, with
several companies painting a rosier picture for upcoming
quarters than many analysts and investors had expected. One
near-term problem is the fact that many of our plays are now
rubbing up against their upper Bollinger bands as they attempt
to break out of sustained downtrends. The tug of war with the
bulls and the bears is likely to come to a head in the week
ahead, as all eyes focus on the upcoming FOMC meeting, with the
expectation of another interest rate decrease.
Despite strong showings from DJIA technology stocks like IBM and
MSFT, the "old economy" index has been unable to participate in
the bullish party. This seems to indicate that money is
rotating into technology, but the great pile of cash on the
sidelines is not yet moving into the market. Confirming this
theory are the big boys; Commercial traders are continuing to
hold their extreme net short positions, and until they begin to
cover, we will have a hard time sustaining an extended rally.
In accordance with an upward trending broader market, the VIX
has retreated from its extreme levels and spent the past week
tracking lower, coming to rest on Friday at 26.29, just below
its 200-dma. While this decline indicates that some of the fear
has come out of the markets, we have plenty of room to fall
before we reach the danger zone near 20.
It appears highly unlikely that we have entered a sustained
rally that will propel us back to new highs on any of the major
indices without fits of profit taking. As all these indices
struggle to climb above important historical, moving average,
and trendline resistance, we are holding our breath in hopes
that the next selloff (likely to follow the FOMC meeting) will
fail to test the recent lows, producing a pattern of higher lows
from which the bull market can regain its feet. When we see
this pattern begin to develop, we will feel much more confident
in calling a bottom to the bear market of 2000, and committing
fresh capital to our favorite plays.
I am cautiously optimistic that the worst is behind us, but
after the past 9 months, it seems that I see potentially failed
rallies at every turn. We have time to wait for the charts to
prove their bullish intentions, and in the meantime we can dust
off those action plans that have been lying dormant since we
began looking for a market bottom in late October. LEAPS
investing allows us the luxury of time, not only to be right,
but for the right entry point to come to us. The over-extended
nature of many of the stocks on our playlist may be fine for
momentum investors, but prudence demands that we wait for a
pullback and the development of a series of higher lows.
As an example that is representative of many Technology stocks,
let's look at a daily chart of one of our long-term plays, NT.
After a long painful slide, the bulls appear to have put in a
convincing bottom near $30. Prompted by strong earnings in the
Optical sector last week, including NT itself, the stock rallied
to close out the week at $40, right at its 3-month descending
trendline. The problem arises when you realize that the stock
is now 5% over its upper Bollinger band and daily Stochastics
have entered the overbought zone. While we could see NT track
still higher next week, a pullback in the near future seems a
likely occurrence. The level where that pullback runs out of
steam will be pivotal in our entry strategy going forward. If
the stock can hold above the $33-34 support level and then head
back up, that will be a strong indication that the worst is
behind for this Networking powerhouse. Then, and only then,
will we feel comfortable committing to new positions.
We can see similar patterns developing in several of our plays
including EMC, CSCO, AOL, QQQ, DELL, and MU. Many of these
stocks are starting to show positive movement in their weekly
Stochastic oscillators, and if the daily patterns are resolved
in favor of the bulls, we could be looking at the beginning of
another sustained rally. Wait for the charts to prove
themselves to you and only play when your entry criteria are
satisfied.
Stick to your plan, and have a profitable week!
Current Plays
SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN
EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $39.50 315.79%
09/17/00 JAN-2003 $100 VUE-AT $32.75 $21.25 -35.11%
CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $ 8.63 -21.59%
11/26/00 JAN-2003 $ 60 VYC-AL $16.63 $ 8.50 -48.87%
NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $12.75 -15.73%
09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 7.00 -74.55%
AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 7.30 -60.82%
08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $16.20 - 7.43%
AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $10.38 11.20%
WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $20.13 274.07%
10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $12.88 63.49%
NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 6.38 -63.04%
07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $10.25 -42.25%
C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $12.50 21.24%
10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $11.13 - 9.18%
GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $28.13 64.19%
JAN-2003 $ 70 OZG-AN $23.13 $36.25 56.72%
QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $22.25 - 1.11%
JAN-2003 $ 70 VLM-AN $29.63 $30.38 2.51%
TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $14.13 2.73%
JAN-2003 $ 50 VXT-AJ $18.38 $19.00 3.40%
BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $13.25 -23.19%
JAN-2003 $ 70 VNG-AN $25.00 $20.00 -20.00%
MU 11/26/00 JAN-2002 $ 45 WGY-AI $13.13 $15.13 15.24%
JAN-2003 $ 45 VGY-AI $17.25 $20.63 19.57%
A 12/03/00 JAN-2002 $ 55 YA -AK $16.88 $24.63 45.93%
JAN-2003 $ 60 OAE-AL $19.88 $27.88 40.25%
ORCL 12/10/00 JAN-2002 $ 35 WOK-AG $ 7.75 $ 9.50 22.58%
JAN-2003 $ 35 VOR-AG $11.13 $13.38 20.17%
QQQ 12/10/00 JAN-2002 $ 70 WNQ-AR $15.13 $12.88 -14.90%
JAN-2003 $ 75 VZQ-AW $19.25 $16.38 -14.94%
WMT 12/24/00 JAN-2002 $ 55 WWT-AK $ 9.63 $ 8.00 -16.88%
JAN-2003 $ 55 VWT-AK $14.00 $12.38 -11.61%
DELL 01/07/01 JAN-2002 $ 20 WDQ-AD $ 5.25 $ 9.50 80.95%
JAN-2003 $ 25 VDL-AE $ 5.63 $ 9.25 64.30%
WCOM 01/14/01 JAN-2002 $ 25 WQM-AE $ 5.00 $ 4.75 - 5.00%
JAN-2003 $ 25 VQM-AE $ 7.38 $ 7.25 - 1.69%
Spotlight Play
WM - Washington Mutual $48.00
That's right. Our old friend WM is back in the limelight again,
having successfully defended itself against the bears at the
$43-44 support level and making a strong case for further upside
as lower interest rates loom in our future. The decline that
began in late December looks like the normal profit taking that
accompanies a dramatic rise, which WM clearly had, rising more
than 150% between March and December. Now back above the
important 50-dma ($47.19), with daily stochastics back in ascent
mode, and the Fed likely to reduce interest rates by the end of
the month, it looks like the most likely near-term direction
will be up. Continuing to impress the street, WM reported
earnings last week, 3 cents ahead of analyst estimates. The
CEO, Kerry Killinger, indicated that despite a slowing economy,
the company was entering the new year from a position of
strength due to high asset quality. We are looking for
aggressive entry points on an intraday dip to the $45-46 support
level, so long as it is followed by a solid bounce. More
conservative players will want to stage a rally through the $50
resistance level before adding new positions. In either case,
we expect WM to continue the stellar performance of the last 8
months and challenge its highs near $56 in the near future.
BUY LEAP JAN-2002 $50.00 WWI-AJ at $ 7.25
BUY LEAP JAN-2003 $50.00 VWI-AJ at $10.50
New Plays
CPN - Calpine Corporation $37.69
So, you're looking for a way to capitalize on the energy crisis
that is brewing in California and threatening to spill over
into the rest of the country? Look no further than our new
play, CPN. The company currently owns interests in 46 power
plants having an aggregate capacity of more than 5400 megawatts.
Growing rapidly, when CPN completes the projects currently
under construction, it will have interests in 54 plants, located
in 17 states, with a total capacity of more than 10,000
megawatts. As a California-based power generator, the company
is on the profitable side of the current crisis that has stemmed
from a poorly thought out and incomplete deregulation plan. The
company is even environmentally friendly as their plants are
based on combined-cycle natural gas-fired and geothermal power
generation. Unlike the struggling California utilities, CPN has
been able to raise its prices to reflect the rising costs of
natural gas, and we expect this to be reflected in the company's
earnings, set to be released the morning of February 6th.
Helped along by strong earnings from DUK, analysts are starting
to see the merits of CPN as well, leading to ABN Amro's upgrade
to Buy on Thursday, and a new Buy rating from Banc of America on
Friday. The past 5 trading days saw the stock confirm the $29
support level and launch higher, clearing both the 200-dma
($36.38) and historical resistance at $36.50 on Friday. Before
you run out and buy LEAPS with abandon, keep in mind that along
with much of the Utility sector CPN is still in a long-term
downtrend, and needs to clear the descending trendline ($39),
also the site of the converged 30-dma and 50-dma, before
conservative investors will want to step into the play. A more
aggressive approach will be to look for a bounce near $36 before
putting your cash to work.
BUY LEAP JAN-2002 $40.00 YLN-AH at $10.50
BUY LEAP JAN-2003 $40.00 OLB-AH at $15.38
Drops
None
www.OptionInvestor.com
***********************ADVERTISEMENT************************
Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR
http://www.sungrp.com/tracking.asp?campaignid=1426
************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

The Option Investor Newsletter Sunday 01-21-2001
Sunday 5 of 5
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/012101_5.asp
*************
COVERED CALLS
*************
Covered-Call Strategies: Option Selling Basics
By Mark Wnetrzak
The #1 goal for most option traders is correctly predicting the
future movement of the underlying stock or index. However, once
the decision to open a position has been made, the average
investor will have some difficulty determining which option to
buy or sell. To be a successful trader, you must be able to
select favorable option positions based on pricing and the time
horizon of your play. Using covered-call options as an example,
a conservative investor that uses trend and sentiment analysis
might sell short-term, deep-in-the-money options on technically
favorable stocks. In contrast, an investor that uses fundamental
valuation to make decisions would generally buy long term options
or LEAPS and sell monthly out-of-the-money options to reduce the
overall cost basis of the position.
After determining the correct time frame, you must still decide
which option to sell. In most cases, short-term positions are
much more successful if you sell in or at-the-money options. In
this conservative option writing strategy, you should strive for
plays that return a minimum of 3%-5% per month while retaining
downside protection of at least 10% of the current stock price.
The overall position that is constructed using these guidelines
will be a relatively low risk play (regardless of the volatility
of the underlying stock) since the levels of protection will be
large and there is still the expectation of a reasonable return.
For long-term covered-call positions, the goal is to reduce the
overall cost of the stock with the income from monthly sales of
near-term options. Investors that participate in this strategy
with bullish stocks utilize out-of-the-money calls to reduce the
chance of having their short positions exercised - in which case
delivery of the underlying issue would be required. The problem
with this technique is that when one sells an out-of-money option,
the overall position tends to reflect more of the result of the
stock price movement and less of the benefits of writing the call.
This occurs because the premium of the out-of-the-money call is
relatively small and the overall position is very susceptible to
loss if the underlying stock declines.
There is another concept in option pricing that is very important
when determining the most favorable option to buy or sell. The
technical term is; Implied Volatility. Most traders identify
this component as "premium" even though the word premium refers
to the cost of the option relative to its strike price and the
value of the underlying security. What the trader is really
referring to is the implied volatility. In short, when implied
volatility is low (relative to historic levels), options are
under-priced and when implied volatility is high, options are
overpriced. To be successful, an option trader must be able to
assess a position's value, using the components of theoretical
pricing and select the most favorable options to buy (or sell)
when participating in common trading strategies.
Good Luck!
SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return!
Stock Price Last Call Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
PPRO 17.00 22.31 JAN 12.50 5.00 *$ 0.50 21.1%
FIBR 16.06 26.38 JAN 12.50 4.75 *$ 1.19 15.2%
ADIC 23.94 26.06 JAN 20.00 4.88 *$ 0.94 10.7%
SMTC 23.44 28.75 JAN 20.00 4.38 *$ 0.94 10.7%
MCOM 10.75 15.06 JAN 7.50 3.88 *$ 0.63 10.0%
APWR 38.88 39.00 JAN 35.00 5.25 *$ 1.37 8.9%
NRGN 35.13 32.25 JAN 30.00 6.75 *$ 1.62 8.3%
MCLD 14.69 21.31 JAN 12.50 3.00 *$ 0.81 7.5%
SUNW 28.00 30.88 JAN 22.50 6.25 *$ 0.75 7.5%
CRK 11.44 11.56 JAN 10.00 2.19 *$ 0.75 7.0%
GLGC 21.25 22.63 JAN 17.50 5.25 *$ 1.50 6.8%
FNSR 27.00 36.94 JAN 22.50 5.75 *$ 1.25 6.4%
XOXO 22.00 27.81 JAN 17.50 5.00 *$ 0.50 6.4%
EXFO 32.00 50.44 JAN 22.50 11.25 *$ 1.75 6.1%
KLAC 31.81 44.94 JAN 25.00 8.13 *$ 1.32 6.1%
EDGW 5.63 6.75 JAN 5.00 1.00 *$ 0.37 5.8%
MATX 17.13 16.63 JAN 15.00 2.69 *$ 0.56 5.6%
CHMD 12.13 11.06 JAN 10.00 2.50 *$ 0.37 5.6%
PHSY 15.00 16.13 JAN 12.50 2.94 *$ 0.44 5.3%
PHI 17.56 20.00 JAN 15.00 3.25 *$ 0.69 5.2%
QTRN 18.38 19.75 JAN 17.50 2.06 *$ 1.18 5.2%
PRIA 23.56 28.88 JAN 20.00 4.00 *$ 0.44 4.9%
AVID 18.63 18.69 JAN 17.50 2.06 *$ 0.93 4.9%
WMS 19.00 17.81 JAN 17.50 2.25 *$ 0.75 4.9%
MLHR 26.81 26.81 JAN 25.00 2.88 *$ 1.07 4.9%
CVD 11.38 13.81 JAN 10.00 2.00 *$ 0.62 4.8%
GETY 32.00 26.00 JAN 25.00 7.75 *$ 0.75 4.5%
BBY 39.94 42.50 JAN 35.00 5.63 *$ 0.69 4.4%
WMS 19.69 17.81 JAN 17.50 3.00 *$ 0.81 4.2%
ARQL 33.75 26.06 JAN 25.00 10.00 *$ 1.25 3.8%
CPRT 18.69 17.06 JAN 17.50 2.19 $ 0.56 2.9%
HSIC 30.63 28.13 JAN 30.00 2.31 $ -0.19 0.0%
ATHM 8.72 8.69 FEB 7.50 2.00 *$ 0.78 10.4%
ANTC 11.25 11.06 FEB 10.00 2.25 *$ 1.00 9.9%
XLA 8.38 11.75 FEB 5.00 3.88 *$ 0.50 9.9%
HOTT 22.13 22.31 FEB 17.50 5.88 *$ 1.25 6.9%
SCON 7.13 7.38 FEB 5.00 2.44 *$ 0.31 5.9%
CPST 34.19 41.88 FEB 25.00 10.50 *$ 1.31 4.9%
*$ = Stock price is above the sold striking price.
Comments:
Expiration: Time to once again evaluate your long-term outlook
for Copart (NASDAQ:CPRT) and Henry Schein (NASDAQ:HSIC). Is the
current weakness an opportunity or an omen of tougher times ahead?
Did you exit any positions early? Both Arqule (NASDAQ:ARQL) and
Getty Images (NASDAQ:GETY) were acting fairly weak though they
did manage to close above the sold strike. Closing the positions
listed below prevented an erosion of precious capital. No sense
leaving money in a losing position when there are so many other
candidates to invest in.
Positions Closed:
MRVT, RFMD, LEXG, GZMO, BCGI
NEW PICKS
*********
Sequenced by Return
*****
Stock Last Call Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
GEN 10.50 FEB 10.00 GEN BB 1.50 25 9.00 28 12.1%
CLRS 7.88 FEB 5.00 RPU BA 3.25 140 4.63 28 8.7%
RDRT 7.56 FEB 5.00 RDQ BA 2.88 1059 4.68 28 7.4%
BKHM 22.56 FEB 17.50 BUI BW 6.13 45 16.43 28 7.1%
ASTSF 16.31 FEB 12.50 QDQ BV 4.38 45 11.93 28 5.2%
ENTU 20.31 FEB 15.00 EXH BC 6.00 146 14.31 28 5.2%
MCCC 20.00 FEB 17.50 MUD BW 3.25 0 16.75 28 4.9%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.
*****
ASTSF - ASE Test Limited $16.31 *** Just Sector Strength? ***
ASE Test Limited (NASDAQ:ASTSF) is the world's largest independent
providers of semiconductor testing services. The Company provides
customers with a complete range of semiconductor testing services,
including front-end engineering testing, wafer probing, final
production testing of packaged semiconductors and other test-
related services. No recent news to explain this month's rally.
We simply favor the improving technical signals and the strength
of the recent bullish move. With earnings are due in early
February, ASTSF offers conservative entry point with a favorable
cost basis near technical support (the December high).
FEB 12.50 QDQ BV LB=4.38 OI=45 CB=11.93 DE=28 MR=5.2%
/charts/jan01/charts.asp?symbol=ASTSF
*****
BKHM - Bookham Technology $22.56 *** Bottom Fishing! ***
Bookham Technology (NASDAQ:BKHM) designs, manufactures and markets
components that integrate optical processing functions on a single
silicon chip using high volume production methods. Using patented
silicon-based ASOC technology, the company's products generate,
detect, route and control light signals, allowing communications
network providers to build systems with advanced optical processing
capabilities to help meet the growing demands of Internet traffic.
BKHM will increase its overall manufacturing capacity with a
recently leased 150,000 square foot fully-equipped manufacturing
facility in Columbia, Maryland. This creates a North American hub,
in line with their expansion plans and growing U.S. customer
relationships. The heavy-volume rally over the last week is
signaling a change in character and possibly higher prices ahead.
Bookham is due to report earnings in the middle of February
FEB 17.50 BUI BW LB=6.13 OI=45 CB=16.43 DE=28 MR=7.1%
/charts/jan01/charts.asp?symbol=BKHM
*****
CLRS - Clarus Corporation $7.88 *** Stage I Base ***
Clarus (NASDAQ:CLRS) provides B2B procurement software and
trading services that use the global Internet marketplace to
manage corporate purchasing and enable digital marketplaces.
The company's fully managed service portal, ClarusNet(TM),
provides a comprehensive range of critical trading services
such as payment settlement, supplier enablement, auctions,
integration, and analytics. The Application Software sector
has begun to shows signs of life and Clarus offers a reasonable
cost basis to speculate on the rebound. Thursday's upgrade
by Stephens Inc should help bolster the current upward momentum.
Earnings are due on February 13.
FEB 5.00 RPU BA LB=3.25 OI=140 CB=4.63 DE=28 MR=8.7%
/charts/jan01/charts.asp?symbol=CLRS
*****
ENTU - Entrust Technologies $20.31 *** Post Earnings Rally! ***
Entrust Technologies (NASDAQ:ENTU) was one of the pioneers of
the public-key infrastructure and digital certificate solutions
that provide security over the Internet. The Company enables
customers to secure their B2B, B2C and internal enterprise
transactions and communications, as well as to manage the
e-business portals through which these transactions take place.
Entrust reported an in-line 4th-quarter on Wednesday though
revenues increased 84% to $47.8 million. Entrust maintained
its FY01 revenue forecast and is well positioned to execute
continued growth. Investors appear pleased and Friday's move
on heavy volume suggests further upside potential. We prefer
an entry point closer to technical support.
FEB 15.00 EXH BC LB=6.00 OI=146 CB=14.31 DE=28 MR=5.2%
/charts/jan01/charts.asp?symbol=ENTU
*****
GEN - GenRad $10.50 *** Bracing for a Rally? ***
GenRad (NYSE:GEN) develops, manufactures and markets advanced
performance-assurance technologies. GenRad has four business
units, bringing to market integrated hardware, software and
service solutions that empower always-on services and business
applications. On Tuesday, GenRad's public relations service
must have had too much caffeine: The company announced
several partnerships and the introduction of several new
services and products. Investors appear to be pleased as
stock has moved higher on heavy volume. We simply favor the
Stage I base and improving technical signals. The company
anticipates a revenue growth of 10% to 30% for 2001.
FEB 10.00 GEN BB LB=1.50 OI=25 CB=9.00 DE=28 MR=12.1%
/charts/jan01/charts.asp?symbol=GEN
*****
MCCC - Mediacom $20.00 *** New All-time High! ***
Mediacom Communications (NASDAQ:MCCC) is the 9th largest cable
television company in the U.S. offering an array of broadband
services, including cable television, advanced digital video
programming and high-speed Internet access. The Company's
cable systems pass approximately 1.2 million homes and serve
approximately 780,000 basic subscribers in 22 states. Mediacom
recently completed the acquisition of cable television systems
from a subsidiary of AT&T Broadband which should expand its
presence in the Southern region. On Thursday, Mediacom announced
that it had privately sold $500 million of 12-year senior bonds,
$200 million more than originally planned. This infusion of
capital will be used to repay bank debt and for general corporate
purposes. More acquisitions? In any case, the stock has rallied
to a new high on heavy volume and this play offers a reasonable
entry point at the first level of technical support. Earnings
are due in early February.
FEB 17.50 MUD BW LB=3.25 OI=0 CB=16.75 DE=28 MR=4.9%
/charts/jan01/charts.asp?symbol=MCCC
*****
RDRT - Read-Rite $7.56 *** Data Storage and Optical too! ***
Read-Rite Corporation (NASDAQ:RDRT) is one of the world's leading
independent manufacturers of magnetic recording heads, head gimbal
assemblies and head stack assemblies for disk drives and tape
drives. RDRT is the majority shareholder of Scion Photonics, a
manufacturer of custom and standard Dense Wavelength Division
Multiplexers and other optical communication components. Analysts
continue to see Read-Rite make significant progress both in their
R&D and manufacturing areas. In early January, RDRT announced
that they will be releasing greater than expected earnings and
revenues for the 1st-quarter of fiscal 2001. Investors reacted
to the news by rallying the stock on heavy volume and reversing
a 3-month downtrend. With earnings due on Wednesday, January
24, we prefer a more conservative entry point. After all, the
stock is up over 100% from the December low.
FEB 5.00 RDQ BA LB=2.88 OI=1059 CB=4.68 DE=28 MR=7.4%
/charts/jan01/charts.asp?symbol=RDRT
*****
*****************
SUPPLEMENTAL COVERED CALLS
*****************
The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook. They will not be included in
the weekly portfolio summary.
Sequenced by Return
*****
Stock Last Call Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
PTEC 18.38 FEB 17.50 PKQ BW 2.00 232 16.38 28 7.4%
PLXS 43.69 FEB 35.00 QUA BG 10.50 192 33.19 28 5.9%
CHTR 23.69 FEB 22.50 CUJ BX 2.31 221 21.38 28 5.7%
MFNX 19.06 FEB 15.00 QFN BC 4.75 1397 14.31 28 5.2%
SMRA 11.44 FEB 10.00 BQM BB 1.88 30 9.56 28 5.0%
LPTH 24.38 FEB 15.00 HDU BC 10.00 128 14.38 28 4.7%
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?
Learn how to invest in the OEX, QQQ, and SPX. Get intraday
market updates, plays, education and daily commentaries by
those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1416
************************************************************
***********************
CONSERVATIVE NAKED PUTS
***********************
Trading Strategies: Aggressive or Conservative - What Works Best?
By Ray Cummins
New investors often ask how they should approach the stock market.
Traders who are too aggressive tend to destroy their portfolios
with failed attempts to time the market while ultra-conservative
participants are barely able to keep up with inflation. Most
investors simply want financial independence and a comfortable
standard of living, but that goal can be difficult to achieve.
Keeping your hard-earned money buried in savings accounts and
certificates of deposit will provide only the absolute minimum
returns while day-trading options on Internet stocks is a good
way to quickly go broke. How do you find a comfortable medium?
The first step to developing a sensible, well-balanced investing
strategy is to identify your goals. At what age do you expect to
be financially independent? How much money will you need to live
comfortably at that time? Finally, how much can you contribute
to a trading account on a regular basis? There is also something
to be said for developing a complex trading plan but in a market
that is constantly changing, there can be no absolute rules, only
guidelines. As an adept investor, you must remain flexible and
constantly update your approach and attitudes. Success in today's
market requires that you know when to follow the basic rules and
when to rely on personal judgment. If the answer was obvious, we
would all be prosperous, regardless of the prevailing financial
conditions. At the same time, becoming profitable in the stock
market is not as difficult as it seems and much of what it takes
to be successful is common knowledge, available to anyone who is
willing to learn. After you have acquired the basic principles
of buying and selling stocks and options, it is important to let
your skills evolve naturally and allow your experience level to
dictate how you should participate in the market. In all cases,
the fundamental objective should be construct positions that are
appropriate for your personal investment philosophy and risk
tolerance.
While strategy is important, it is also imperative to approach
investment activities with the right attitude and expectations.
Trying to achieve too much from a portfolio can put the account
in the red quickly (greed can lead to terrible decisions), and
accepting returns that barely surpass current inflation rates
will prevent a portfolio from growing. Conservative investments
are defined as those with a high degree of safety and a minimal
amount of risk. In contrast, strategies that have higher profit
potential involve greater risk. Since the ultimate goal of any
investment technique is to maximize the return on your position
while minimizing risk, the key is to use methods that offer some
measure of safety, a high probability of success and favorable
profit potential. During times of market volatility, strategies
that emphasize long-term results are particularly beneficial in
balancing risk and reward, and diversifying your positions among
different industries or market segments can prevent catastrophic
loss and in many cases, increase portfolio returns. Another key
component of capital growth is the magic of compounding. This
concept is the fundamental principal of investing and can produce
far greater profits than skillful chart analysis or precise entry
and exit techniques. The "Rule of 72" is a simple and easy way
to calculate the time in which money doubles at a given interest
rate. To find the length of time in which money doubles at 6%,
divide 72 by 6, and you get 12 years. At 12%, your money doubles
in 6 years. When you consider that mathematical factor and then
apply the appropriate risk versus reward outlook, you'll be better
prepared to select the "correct" investment strategies.
Investing in the stock market is described as a game of odds and
the best way to be successful is to put the odds in your favor by
utilizing sound judgment and applying the tools in your arsenal
consistently with patience and perseverance. If stock ownership
is one of your primary investment tools, you must evaluate how
each individual position contributes to your long-term outlook.
Does the stock compliment your portfolio? Is it a company you
want to own right now or in the future? Are you willing to pay
the current price for the issue? Experienced investors assemble
a collection of favorable candidates and identify the best entry
opportunity for each issue through chart reading and technical
analysis. Remember, research increases knowledge and
knowledge increases profits.
Good Luck!
*** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.
SUMMARY OF PREVIOUS PICKS
*****
Stock Price Last Put Strike Price Profit Monthly
Symbol Picked Price Month Sold Picked /Loss Return
CLPA 6.25 6.56 JAN 5.00 0.25 *$ 0.25 36.2%
PHI 17.81 20.00 JAN 15.00 0.50 *$ 0.50 15.1%
KLAC 33.69 44.94 JAN 25.00 0.75 *$ 0.75 14.5%
PLNR 28.88 25.25 JAN 22.50 0.63 *$ 0.63 10.7%
CNF 33.81 31.94 JAN 30.00 0.69 *$ 0.69 9.6%
CHTR 22.00 23.69 JAN 20.00 0.81 *$ 0.81 9.3%
BSTE 37.50 29.00 JAN 25.00 0.69 *$ 0.69 9.2%
STAT 26.44 23.88 JAN 22.50 0.44 *$ 0.44 9.0%
NEM 16.25 16.31 JAN 15.00 0.88 *$ 0.88 8.9%
ALSI 33.63 29.88 JAN 25.00 0.44 *$ 0.44 8.9%
AEIS 24.38 33.25 JAN 20.00 0.69 *$ 0.69 8.2%
ADVP 39.50 32.56 JAN 30.00 0.81 *$ 0.81 8.1%
HCR 19.69 18.88 JAN 17.50 0.44 *$ 0.44 7.8%
MU 35.88 46.44 JAN 25.00 0.69 *$ 0.69 7.6%
ADLAC 48.56 46.75 JAN 35.00 0.69 *$ 0.69 7.2%
LFG 38.38 40.50 JAN 35.00 1.00 *$ 1.00 6.7%
C 53.69 54.38 JAN 50.00 0.56 *$ 0.56 6.6%
PPDI 48.19 44.06 JAN 40.00 0.69 *$ 0.69 6.4%
COST 41.31 40.44 JAN 37.50 0.38 *$ 0.38 6.3%
SPF 25.44 25.13 JAN 22.50 0.69 *$ 0.69 6.3%
TXN 47.63 50.31 JAN 32.50 0.56 *$ 0.56 6.0%
GM 54.00 55.44 JAN 50.00 0.50 *$ 0.50 6.0%
BSTE 36.94 29.00 JAN 22.50 0.50 *$ 0.50 5.5%
NKE 51.19 52.44 JAN 45.00 0.75 *$ 0.75 5.4%
TXCC 47.88 50.38 JAN 25.00 0.75 *$ 0.75 5.3%
KLAC 35.94 44.94 JAN 22.50 0.56 *$ 0.56 5.2%
PHCC 40.81 32.31 JAN 32.50 0.50 $ 0.31 5.2%
SNPS 42.13 53.19 JAN 35.00 0.88 *$ 0.88 5.2%
BCHE 28.38 34.00 JAN 25.00 0.50 *$ 0.50 5.1%
CCR 41.69 45.00 JAN 35.00 0.75 *$ 0.75 5.1%
FNSR 37.50 36.94 JAN 22.50 0.56 *$ 0.56 5.0%
ADLAC 40.81 46.75 JAN 30.00 0.50 *$ 0.50 5.0%
OXY 22.56 22.31 JAN 20.00 0.56 *$ 0.56 4.9%
CPRT 20.25 17.06 JAN 17.50 0.38 $ -0.06 0.0%
INSUA 39.88 34.06 JAN 35.00 0.44 $ -0.50 0.0%
CAL 56.50 47.69 JAN 50.00 0.63 $ -1.68 0.0%
HD 49.75 41.00 JAN 45.00 0.56 $ -3.44 0.0%
RATL 47.88 46.75 FEB 35.00 1.25 *$ 1.25 10.3%
SMTC 27.75 28.75 FEB 17.50 0.63 *$ 0.63 9.1%
GMST 52.69 48.81 FEB 35.00 1.19 *$ 1.19 9.1%
PLUG 19.94 24.81 FEB 12.50 0.44 *$ 0.44 8.9%
ISSI 17.75 18.00 FEB 12.50 0.38 *$ 0.38 8.7%
MFNX 18.69 19.06 FEB 12.50 0.38 *$ 0.38 8.3%
AVCI 37.13 31.19 FEB 20.00 0.69 *$ 0.69 7.6%
*$ = Stock price is above the sold striking price.
Comments:
Continental Airlines (NYSE:CAL) offered a profitable exit at the
open; a viable move in the face of a weakening Transport sector.
The warning by Home Depot (NYSE:HD) and the gap down at the open
offered little chance to end the play with a profit. Consider
selling covered-calls on the blue-chip issue. If you didn't
exit Priority Healthcare (NASDAQ:PHCC), Copart (NASDAQ:CPRT) or
Insituform Technology (NASDAQ:INSUA), the technicals suggest
further downside potential. Cor Therapeutics (NASDAQ:CORR) wins
this month's Murphy's Law award.
Positions Closed:
CORR
NEW PICKS
*********
Sequenced by Return
******
Stock Last Put Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
FIBR 26.38 FEB 17.50 QFW NW 0.69 0 16.81 28 12.6%
JNIC 29.00 FEB 17.50 JOQ NW 0.75 15 16.75 28 12.4%
TVLY 20.69 FEB 15.00 QUT NC 0.38 13 14.62 28 9.1%
PPRO 22.31 FEB 12.50 PXZ NV 0.38 878 12.12 28 8.5%
BMCS 32.13 FEB 22.50 BCQ NX 0.44 678 22.06 28 7.0%
EXFO 50.44 FEB 30.00 FQO NF 0.69 87 29.31 28 7.0%
MU 46.44 FEB 35.00 MU NG 0.56 1733 34.44 28 6.2%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.
*****
BMCS - BMC Software $32.13 *** Entry Point! ***
BMC Software (NASDAQ:BMCS) is an independent software vendor,
delivering comprehensive management solutions. BMCS provides
software solutions that enhance the availability, performance
and recoverability of business-critical applications to help
improve business management. Their portfolio of management
solutions allows its customers to manage various components
and technologies within their information technology systems
from end-to-end, from legacy databases and applications on
large mainframes to customer-facing Web portals and exchanges.
BMCS reported earnings that beat expectations, and the CEO
attributed the results to improvements in sales execution and
a recovery from dampened spending earlier in the year. Now
the company is "back on track" and we favor a conservative
cost basis in the issue.
FEB 22.50 BCQ NX LB=0.44 OI=678 CB=22.06 DE=28 MR=7.0%
/charts/jan01/charts.asp?symbol=BMCS
*****
EXFO - Electro-Optical Engineering $50.44 *** On The Move! ***
Electro-Optical Engineering (NASDAQ:EXFO) is a manufacturer and
marketer of fiber-optic measurement and monitoring instruments
for the telecommunications industry. The company's Portable and
Monitoring Division provides solutions to telecom carriers, cable
television companies, public utilities, private network operators,
installers and equipment rental companies. Their Scientific
Division designs an extensive line of sophisticated instruments
for manufacturers of optical components, modules and networking
systems. Record earnings and exponentially increasing demand for
EXFO's products have driven this issue to incredible gains. As
the stock consolidates from an unsustainable rally, we will take
a speculative position near the top of its recent trading range.
FEB 30.00 FQO NF LB=0.69 OI=87 CB=29.31 DE=28 MR=7.0%
/charts/jan01/charts.asp?symbol=EXFO
*****
FIBR - Sorrento Networks $26.38 *** Hot Sector! ***
Sorrento Networks (NASDAQ:FIBR) is a top supplier of end-to-end,
intelligent optical networking solutions for metro and regional
applications worldwide. Sorrento Networks' products support a
wide range of protocols and network traffic over linear, ring and
mesh topologies. Sorrento Networks' existing customer base and
market focus includes communications carriers in the telecom,
cable TV, fixed wireless and utilities markets. The Storage Area
Network market is addressed through a unique alliance with INRANGE
Technologies. Sorrento expects to report revenue from shipments
of products during the fourth quarter FY2001, to reach 50% growth
from third quarter 2001 revenue of $7.1 million. Sorrento also
expects to report 50% quarter-to-quarter growth for the first
fiscal quarter in 2002. Earnings will be released in early March.
FEB 17.50 QFW NW LB=0.69 OI=0 CB=16.81 DE=28 MR=12.6%
/charts/jan01/charts.asp?symbol=FIBR
*****
JNIC - JNI Corporation $29.00 *** Bottom Fishing! ***
JNI Corporation (NASDAQ:JNIC) is a designer and supplier of Fibre
Channel hardware and software products that connect servers and
data storage devices to form storage area networks (SANs). SANs
were made possible by the emergence of Fibre Channel technology,
a new generation of server to storage communications technology
that improves data communication speeds, connectivity, distance
between connections, reliability and accessibility. The company
currently markets high-performance application specific integrated
circuits based on its proprietary technology, a broad range of
Fibre Channel host bus adapters and software that facilitates
advanced SAN device integration and management. Earnings are due
next week and it appears all of the downside potential has been
priced into the issue.
FEB 17.50 JOQ NW LB=0.75 OI=15 CB=16.75 DE=28 MR=12.4%
/charts/jan01/charts.asp?symbol=JNIC
*****
MU - Micron $46.44 *** Break-out? ***
Micron Technology (NYSE:MU) principally designs, develops,
manufactures and markets semiconductor memory products and PC
systems. The company is organized into two operating segments;
semiconductor operations and PC operations. PC operations are
conducted by Micron Electronics (NASDAQ:MUEI), a publicly traded
subsidiary of the company. Sales to external customers for chip
operations constituted 86% of their sales while and PC operations
brought in 14% of MU's total net sales for 2000. Prudential
Securities raised its rating for Micron to "strong buy" with a
target of $75, saying that low cost structures would increase the
company's market share. The issue moved favorably on the news
and based on the bullish technical indications, further upside
activity is forthcoming.
FEB 35.00 MU NG LB=0.56 OI=1733 CB=34.44 DE=28 MR=6.2%
/charts/jan01/charts.asp?symbol=MU
*****
PPRO - PurchasePro $22.31 *** Bracing For A Rally? ***
PurchasePro (NASDAQ:PPRO), a leader in business-to-business
e-commerce, operates a global marketplace, encompassing more
than 30,000 businesses and powering other unique marketplaces
with its highly scalable, browser-based e-commerce engine. The
company recently announced that two Honeywell organizations have
jointly selected PPRO to create e-marketplaces to help their users
save time, streamline their procurement processes, and cut overall
procurement costs. A recent "buy" recommendation by ABN AMRO and
coverage by Morgan Stanley Dean Witter has provided some upside
momentum and the stock appears ready to move out of its Stage I
base. Earnings are due in mid-February.
FEB 12.50 PXZ NV LB=0.38 OI=878 CB=12.12 DE=28 MR=8.5%
/charts/jan01/charts.asp?symbol=PPRO
*****
TVLY - Travelocity.com $20.69 *** Big Move! ***
Travelocity.com (NASDAQ:TVLY) is the world's largest online travel
agency, with more travel bookings and more monthly visitors to its
web site than any other company. Travelocity.com provides online
reservations capabilities for more than 95% of the world's airline
seats, more than 47,000 hotels, more than 50 car rental companies
and more than 1,800 vacation packages. This reservations capability
is paired with access to a vast database of destination and interest
information. Shares of the Internet travel seller surged last week
after the company predicted it would be close to earning a profit in
the fiscal second quarter and would be profitable for the full year.
That's great news for investors and those of you who use this site
know how well they serve the travelling public. Why not try to own
the issue at a discount price?
FEB 15.00 QUT NC LB=0.38 OI=13 CB=14.62 DE=28 MR=9.1%
/charts/jan01/charts.asp?symbol=TVLY
*****************
SUPPLEMENTAL NAKED PUTS
*****************
The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook. They will not be included in
the weekly portfolio summary.
Sequenced by Return
******
Stock Last Put Strike Option Last Open Cost Days to Monthly
Symbol Price Month Price Symbol Bid Intr Basis Expiry Return
AEIS 33.25 FEB 22.50 OEQ NX 0.56 51 21.94 28 8.4%
DIGL 52.81 FEB 35.00 DGW NG 0.88 123 34.12 28 8.4%
IRF 47.13 FEB 35.00 IRF NG 0.75 242 34.25 28 8.0%
EBAY 50.13 FEB 35.00 QXB NG 0.69 1317 34.31 28 7.0%
AOL 53.80 FEB 42.50 AOE NV 0.65 10095 41.85 28 6.2%
FNSR 36.94 FEB 25.00 FQY NE 0.44 301 24.56 28 6.1%
AMAT 49.94 FEB 35.00 ANQ NG 0.50 2758 34.50 28 5.2%
***********************ADVERTISEMENT************************
Get a NextCard Visa, in 30 seconds!
1. Fill in the brief application
2. Receive approval decision within 30 seconds
3. Get rates as low as 2.9% Intro or 9.9% Fixed APR
http://www.sungrp.com/tracking.asp?campaignid=1427
************************************************************
************************
SPREADS/STRADDLES/COMBOS
************************
It's Time To Fall Back And Regroup...
Technology stocks consolidated today amidst profit taking after a
week of bullish activity.
Friday, January 19
Technology stocks consolidated today amidst profit taking after a
week of bullish activity. The Nasdaq closed almost unchanged at
2,770. The Dow industrials ended 90 points lower at 10,587 on
concerns about the slowing economy. The S&P 500 index was down
5 points at 1,342. Trading on the NYSE was active at 1.4 billion
shares exchanged, with losers beating winners 1,596 to 1,254. On
the NASDAQ, a heavy 2.68 billion shares changed hands with losing
issues outpacing winners 1,943 to 1,882. In the bond market, the
30-year Treasury fell 1 4/32, pushing its yield up to 5.54%.
Thursday's new plays (positions/opening prices/strategy):
Lennar (NYSE:LEN) FEB30P/FEB35P $0.75 credit bull-put
Molex (NASDAQ:MOLX) FEB35P/FEB40P $0.88 credit bull-put
Ericsson (NASDAQ:ERICY) APR15C/FEB15C $0.69 debit calendar
The slump in industrial issues helped our entry in the LEN spread
and post-earnings selling pressure provided an excellent opening
credit in the MOLX position. ERICY was less cooperative, but our
initial debit was favorable for a short-term time spread. We did
not track the speculative position.
Portfolio Plays:
The rally in technology shares came to a halt today as investors
sold for profits amid a slew of mediocre revenue forecasts. The
most disappointing earnings outlook came from Sun Microsystems
(NASDAQ:SUNW) which announced that its growth expectations for
fiscal 2001 would be much lower than expected. Blue-chips stocks
were also affected by discouraging profit estimates as Home Depot
(NYSE:HD) warned that fourth-quarter earnings would come in at
$0.20 a share, $0.04 below the consensus analysts estimates, due
to a declining economy. The reports set the stage for a volatile
session in which select issues enjoyed substantial gains while
less attractive shares slid to new lows. One of the big winners
was Microsoft (NASDAQ:MSFT), which rallied 10% to a recent high
near $61 after meeting lowered second-quarter earnings estimates
and issuing cautiously optimistic guidance. Analysts said the
firm's positive outlook was tempered by caution in consumer and
desktop applications. Nortel Networks (NYSE:NT) also performed
well, up 9% to $40 after reporting fourth-quarter profits which
met analysts' consensus estimates. Among Internet issues, eBay
(NASDAQ:EBAY) was a standout, rallying to $50 after a bullish
earnings report that included increased sales guidance for 2001.
The news was less optimistic for industrial shares and on the
Dow, shares of Minnesota Mining & Manufacturing (NYSE:MMM) led
the average lower. Among broader market segments, computer
hardware stocks were popular while transportation and retail
issues retreated.
Today marked the end of another excellent month for the Spreads
portfolio and the volatility was a perfect example of the type
of trading activity that has produced our biggest winners over
the past few weeks. The Straddles category was by far the top
performer in the section, offering a number of plays with 100%
or greater returns; some after only a few sessions. The most
outstanding neutral plays were Allmerica Financial (NYSE:AFC)
with a 65% profit in two days and Mips Technologies (NASDAQ:
MIPS), which returned a credit of $10 on $3.50 invested in one
week. Advanced Fibre (NASDAQ:AFCI), Oceaneering International
(NYSE:OII), Compass Bancshares (NYSE:CBSS), and Federated
Investors (NYSE:FII) were also among the leading positions. In
the other delta-neutral category; Credit Strangles, we enjoyed
a near perfect record of success. BEA Systems (NASDAQ:BEAS),
Broadcom (NYSE:BRCM), Emulex (NASDAQ:EMLX), Interwoven (NASDAQ:
IWOV), and Sepracor (NYSE:SEPR) ended at maximum profit. The
position in Orthodontic Centers (NYSE:OCA) offered a profitable
exit during today's session and our adjusted play (Covered-call)
in Costco (NYSE:COST) finished $0.44 above the target price.
Among profitable synthetic positions, American Airlines (NYSE:
AMR), Conseco (NYSE:CNC), Safeco (NYSE:SAFC), and Tektronix
(NASDAQ:TEK) were the big winners while NS Group (NYSE:NSS),
Landry's Seafood (NYSE:LNY), and Globo Cabo (NASDAQ:GLCBY) also
provided positive returns.
The credit spreads portfolio is normally one of our most popular
sections and this month it included a long list of profitable
plays. Allergan (NYSE:AGN), Amerada Hess (NYSE:AHC), Bowater
(NYSE:BOW), CV Therapeutics (NASDAQ:CVTX), Goldman Sachs (NYSE:
GS), Hanover Compressor (NYSE:HC), Pfizer (NYSE:PFE), Pharma
Products (NASDAQ:PPDI), and Smith Intl. (NYSE:SII) expired at
maximum credit. The position in Pepsi (NYSE:PEP) provided a
number of profitable exit opportunities during the month, before
sliding below the break-even basis in today's session. Qualcomm
(NASDAQ:QCOM) was adjusted down and forward to February options
and Laboratory Holdings (NYSE:LH) was the sole losing play in
the section. Another popular strategy is the in-the-money debit
spread and during January, profitable positions were offered in
Omnicare (NYSE:OCR), Williams Sonoma (NYSE:WSM), and Worldcom
(NASDAQ:WCOM). The top-performing collar was Pennaco Energy
(NYSE:PN), which was purchased by USX Marathon (NYSE:MRO) and
our long-term play in that category, SpeedFam (NASDAQ:SFAM) has
already achieved profitability. There have been few candidates
in the Calendar Spreads section, as front-month disparities in
premiums have been historically low, however our Covered-calls
and LEAPS plays have performed favorably. The current positions
in this group include Motorola (NYSE:MOT), Microsoft (NASDAQ:
MSFT) and AT&T (NYSE:T). Diagonal plays in Boston Scientific
(NYSE:BSX) and Pactiv (NYSE:PTV) finished near break-even, but
the long options have another month before expiration, and we
expect a profitable outcome in both positions.
Questions & comments on spreads/combos to Contact Support
******************************************************************
- NEW PLAYS -
******************************************************************
IRF - International Rectifier $47.13 *** On The Move! ***
International Rectifier (NYSE:IRF) is a designer, manufacturer
and marketer of power semiconductors, particularly a type of
power semiconductor called a MOSFET, a metal oxide semiconductor
field effect transistor. Power semiconductors perform a power
management function by converting electricity into a form more
usable by electrical products. They increase system efficiency,
allow more compact end products, improve features and overall
functionality and extend battery life. The company's products
are used in a range of end markets, including communications,
consumer electronics, information technology, automotive, and
industrial products. The company's products are broadly divided
among three product categories: Power Integrated Circuits (ICs)
and Advanced Circuit Devices, Power Systems and Power Components.
The semiconductor sector is performing very well and regardless
of how the economy is expected to react in the coming months, it
appears that all of the negative sentiment has been priced into
this group of stocks. In past quarters, a mediocre earnings
report would have been disastrous but now, almost any optimistic
comments are seen as a reason to buy the issue. Fortunately, IRF
is one of the top companies in the industry and they are not
expected to announce any negative surprises in the quarterly
report. Traders who agree with a bullish outlook in the issue
can speculate on the announcement with this conservative credit
spread. Target a higher premium initially, to allow for some
consolidation from the recent gains.
PLAY (very conservative - bullish/credit spread):
BUY PUT FEB-30 IRF-NF OI=286 A=$0.38
SELL PUT FEB-35 IRF-NG OI=242 B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.62 ROI(max)=11%
/charts/jan01/charts.asp?symbol=IRF
******************************************************************
UK - Union Carbide $46.56 *** Earnings Shortfall ***
Union Carbide (NYSE:UK) is a major marketer of petrochemical
products throughout the world. The company converts basic and
intermediate chemicals into a diverse portfolio of chemicals
and polymers serving industrial customers in many markets. The
company provides technology services, including licensing, to
the oil and petrochemicals industries. The company converts
hydrocarbon feedstocks, principally liquefied petroleum gas and
naphtha, into ethylene or propylene, which is used to manufacture
polyethylene, polypropylene, ethylene oxide and ethylene glycol
for sale to its customers, as well as ethylene, propylene,
ethylene oxide and ethylene glycol for its own consumption.
Union Carbide joined a number of other chemical companies this
week in announcing that it would post a larger-than-expected
loss in the fourth-quarter. The chemical giant, which also
warned last quarter of a shortfall, expects to show a loss of
about $0.70 per share in current quarter, well short of analysts'
expectations, which have the company losing only $0.20 a share.
Officials said that margins and earnings were adversely affected
by high raw material and energy costs, which rose to unexpected
levels by the end of the quarter, while average selling prices
were lower than in the prior quarter. The negative impact on
earnings was primarily in the Chemicals and Polymers businesses,
but overall sales revenues also declined from the prior quarter.
This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity. In this case, the premiums for
the (OTM) call options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.
PLAY (conservative - bearish/credit spread):
BUY CALL FEB-60 UK-BL OI=44 A=$0.25
SELL CALL FEB-55 UK-BK OI=321 B=$0.88
INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14%
/charts/jan01/charts.asp?symbol=UK
******************************************************************
BELM - Bell Microproducts $20.56 *** On The Rebound! ***
Bell Microproducts (NASDAQ:BELM) is a value added provider of a
wide range of high technology products, solutions, and services
to the industrial and commercial marketplace. The company's
offering includes semiconductors, computer platforms, peripherals,
and storage products of various types including desktop, high-end
computer and storage subsystems, fibre channel connectivity
products, RAID, NAS and SAN storage systems and other back-up
items. Bell Microproducts is an industry-recognized specialist
in unique storage products and is one of the world's largest
storage-centric value-added distributors.
There are a number of recent articles regarding new contracts and
agreements for BELM including some favorable comments issued in
the Emulex (NASDAQ:EMLX) conference call. However, we believe the
technical change in character is enough to warrant a bullish play
in the issue and with quarterly earnings due early in February,
the position will likely achieve our profit target long before the
options expire.
PLAY (conservative - bullish/synthetic position):
BUY CALL MAR-25.00 QBL-CE OI=100 A=$2.06
SELL PUT MAR-17.50 QBL-OW OI=10 B=$1.62
INITIAL NET CREDIT TARGET=$0.00-$0.12 PROFIT TARGET=$1.25
Note: Using options, the position is equivalent to being long
on the stock. The collateral requirement for the naked put is
approximately $690 per contract.
/charts/jan01/charts.asp?symbol=BELM
******************************************************************
- STRADDLES AND STRANGLES -
******************************************************************
TXCC - TranSwitch $50.38 *** Probability Play! ***
TranSwitch (NASDAQ:TXCC) designs, develops, markets and supports
highly integrated digital and mixed-signal (analog and digital)
semiconductor solutions for the telecommunications and data
communications markets. The company's products are Very Large
Scale Integrated (VLSI) semiconductor devices that provide core
functionality for communications network equipment. Their VLSI
solutions are programmable to provide functionality for unique
high-speed broadband communication networks. These products are
incorporated into original equipment manufacturers' networking
equipment. The company's customers are OEMs who serve three
communications market segments: the worldwide public network
infrastructure that supports voice and data communications,
Internet infrastructure and corporate wide area networks.
The issue is an excellent candidate in the "premium-selling"
category of options trading. Based on analysis of statistical
option pricing and the underlying stock's technical history,
this position meets our fundamental criteria for a favorable
Credit Strangle. The issue has robust option premiums, a well
defined trading range and a high probability of remaining
between the target strike prices. The company's quarterly
earnings have already been announced but other current news
and market sentiment will have an effect on the issue, so
review the position carefully for portfolio suitability and
with regard to your strategic approach and trading style.
PLAY (conservative - neutral/credit strangle):
SELL CALL FEB-80 TZQ-BP OI=257 B=$0.69
SELL PUT FEB-30 TZQ-NF OI=572 B=$0.75
INITIAL NET CREDIT TARGET=$1.62-$1.75 ROI(max)=13%
UPSIDE B/E=$81.62 DOWNSIDE B/E=$28.38
/charts/jan01/charts.asp?symbol=TXCC
******************************************************************
NEWP - Newport Corporation $105.13 *** Earnings Due! ***
Newport Corporation is a global supplier of high-precision test,
measurement and automation systems and subsystems that enable
manufacturers of fiber optic components, semiconductor capital
equipment, industrial metrology, aerospace and other precision
products to automate their manufacturing processes, enhance
product performance, and improve manufacturing efficiencies and
yields. Their high precision products enhance productivity and
capabilities of test and measurement and automated assembly for
precision manufacturing, engineering and research applications.
We like this issue for a bullish position but there are not too
many favorable ways to approach the inflated option premiums.
With the company's earnings due next week, there is potential
for volatile activity, and traders are purchasing overpriced
options at strike prices almost twice the stock's current value.
We have decided to sell some of this premium for credit and use
the earned income to offset any losses on the downside, in the
event we are forced to accept assignment of the issue. If the
price of the stock moves through the resistance area near $155
on heavy volume, we will buy the issue to cover our sold options.
PLAY (conservative - neutral/credit strangle):
SELL CALL FEB-160 NOQ-BL OI=214 B=$1.50
SELL PUT FEB-60 NZZ-NL OI=97 B=$1.19
INITIAL NET CREDIT TARGET=$2.75-$3.00 ROI(max)=12%
UPSIDE B/E=$162.75 DOWNSIDE B/E=$57.25
/charts/jan01/charts.asp?symbol=NEWP
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1441
**************************************************************
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a
Broker/Dealer. Readers are advised that all information is issued
solely for informational purposes and is not to be construed as an
offer to sell or the solicitation of an offer to buy, nor is it to be
construed as a recommendation to buy, hold or sell (short or
otherwise) any security. All opinions, analyses and information
included herein are based on sources believed to be reliable and
written in good faith, but no representation or warranty of any kind,
expressed or implied, is made including but not limited to any
representation or warranty concerning accuracy, completeness,
correctness, timeliness or appropriateness. In addition, we do not
necessarily update such opinions, analysis or information. Owners,
employees and writers may have long or short positions in the
securities that are discussed.

Readers are urged to consult with their own independent financial
advisors with respect to any investment. All information contained in
this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please
add "support@optioninvestor.com"